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(Kitco News) - Gold prices remain under pressure, trading at a three-month low as the Federal Reserve looks to raise interest rates further through 2023, and according to the latest research from ABN AMRO, while the precious metal is still expected to end the year higher, this selling pressure has tarnished its bullish momentum.
In her last gold price forecast, Georgette Boele, senior economist sustainability research at ABN AMRO, said that she is downgrading her long-term gold outlook as she now sees gold prices holding at $2,000 for the rest of this year and 2024, down from the previous 2024 forecast of $2,200.
"Investors don’t seem eager to buy gold at current levels probably because prices are relatively close to all-time high and if prices fall, the current level could not be seen for more than 5 years," she said in the research note.
Boele’s gold price downgrade comes as the precious metal struggles below $1,950 an ounce. August gold futures last traded at $1,921.60 an ounce, relatively flat on the day.
Boele noted that the gold market is struggling as the market prices out the central bank easing in the second half of the year. The shift in market expectations comes as the Federal Reserve has been clear that it is not looking to cut interest rates this year, even as it sees an end to its most aggressive tightening cycle in 40 years.
According to the CME FedWatch Tool, markets see a more than 80% chance of a rate hike next month, which is also seen as the last rate hike.
Boele noted that her bank’s interest rate forecast is roughly in line with market expectations, which could support U.S. nominal and real yields and the U.S. dollar.
"Previously, we did not hold the view of aggressive rate cuts to come in the near term, but we had expected the easing cycle to start at the end of this year," she said. "We no longer have a rate cut for the Fed this year and fewer total rate cuts in 2023-2024. This is a positive for the US dollar."
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According to Boele, the Dutch bank expects the Federal Reserve to cut interest rates by 175 basis points next year as the economy falls into a recession in the first quarter.
Although rate cuts will continue to support gold prices through next year, Boele said it might provide significant bullish momentum needed to push prices to all-time highs.
"As the market has already anticipated this, it is already reflected in the gold price. Therefore we think that upside in gold prices versus the US dollar is rather limited from current levels," she said. "Investors hold net-long gold positions and there is a risk that part of these will be liquidated. But investors have likely bought these positions at lower levels and therefore, investors may have more patience. Overall the positioning in gold is not extreme. But from risk reward point of view being long at current levels may not be attractive."
