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(Kitco News) - Gold prices have room to move lower and retest support below $1,900 an ounce in the early part of the second half of the year; however, that doesn't mean investors should give up on gold, according to one market analyst.
In her mid-year outlook, published last week, Nicky Shiels, metals strategist at MKS PAMP, said that she is maintaining her 2023 year-end price average of $1,930 an ounce, even as prices could remain in a downtrend in the near term.
In what could be a volatile market, MKS sees gold prices trading in a range between $1,850 and $2,100 an ounce through the second half of the year.
"Stay core long Gold but remain tactically nimble, which hinges on the interplay between a relatively restrictive Fed & stronger US data," Shiels said in her latest report.
Shiels warned investors that gold could continue to struggle during the rest of the summer as the Federal Reserve looks to raise interest rates later this month. However, she added that there is a chance gold can still see record all-time highs by the end of the year.
"We do expect a bumpy 2H'23 as monetary policy starts to bite; Gold prices are then expected to print a new all-time-high in 2H'23 and pierce $2100/oz," said Shiels. "Our conviction lies in higher floors versus runaway upside repricing unless the Fed loses the inflation fight (not our base case) or breaks something more substantial in the economy."
Although the threat of a recession, caused by the Federal Reserve's aggressive monetary policies, is still in the marketplace, Shiels said that the fear has diminished, and investors are now chasing momentum in other assets.
"U.S. financial instability risks have materially subsided – there is just no macro fear - and fighting the Fed is usually a losing trade after they have, to-date, simply extremely complicated risks. However, underweight investors will continue to incrementally reengage in quality assets and safe havens like precious metals."
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Along with gold, Shiels also remains bullish on silver, leaving her average price target unchanged at $24 an ounce. At the same time, MKS sees silver prices trading in a range between $21.50 and $27 through the second half of the year.
Shiels noted that silver's significant supply-demand imbalance continues to support the precious metal's long-term bullish outlook.
"Strong support lurks below $22/oz stemming from a mix of industrial & retail participation, which is expected to remain resilient into 2H'23 despite growing recession risks," she said. "There continues to be asymmetric upside risks in Silver which hinges on investor resubscription, the return of Chinese buying & restocking and the convincing rollover in the US$ once the Fed pauses and expectations shift to a consecutive rate cuts."
