(Kitco News) - The gold market continues to breathe and consolidate its record-setting gains on Wednesday. And while prices may see a further correction, one bank remains optimistic that the precious metal is heading higher through the rest of the year.
Daniel Hynes and his team of commodity analysts at ANZ bank updated their gold price forecast for the year on Wednesday. They now see the precious metal reaching $2,300 an ounce by year-end, up from the previous forecasted target of $2,200.
The bullish outlook comes as gold prices consolidate below last week’s record highs above $2,200 an ounce. April gold futures last traded at $2,170.30 an ounce, up 0.25% on the day.
Although the Australian bank expects gold prices to head higher, Hynes said the market will remain sensitive to shifting expectations around the Federal Reserve’s monetary policy.
Tuesday, gold prices saw a sharp selloff following higher-than-expected inflation data. Markets continue to price in a rate cut in June; however, economists note that stubborn inflation puts the Federal Reserve in a difficult position as it looks to start a new easing cycle this year.
Hynes said that uncertainty around potential rate cuts could keep a lid on gold in the near term. However, ANZ does expect the central bank to cut rates in July.
“While we continue to hold our long-term positive view, a retracement looks likely in the short term,” said Hynes. “A price pull-back is an opportunity to build long positions.”
One major factor supporting ANZ’s bullish gold outlook is that the precious metal’s run has been one of the quietest on record. Hynes pointed out that this rally has been supported by momentum from bullish speculators. But he also said that the market is not overheated.
“While speculators have increased their bullish bets recently, positions are not matching the intensity of the latest price rally,” he said. “Moreover, disinvestment in gold-backed Exchange-Traded Funds (ETFs) has been continuing. A lean level of investment in gold should be seen as a potential driver. This not only limits scope for a heavy liquidation but also leaves ample room for fresh buying.”
In a word of caution, Hynes said that if the gold market is going to hold on to these gains, investors need to play a more significant role in the marketplace. He pointed out that higher prices could weigh on physical demand.
Despite this potential headwind, Hynes said that growing economic uncertainty and geopolitical risks will provide fundamental support for the precious metal. He added that the 2024 U.S. Presidential election could drive some safe-haven demand for gold in the second half of the year.
“Amid these economic and geopolitical tensions, equity markets are hitting record highs,” Hynes said in the note. “This could potentially make investors more wary about the downside risk than upside potential. Volatility is expected to pick up as we get closer to the US elections. A risk-off scenario in equity markets will lend support to gold prices.”
The final pillar of support for gold remains central bank demand. ANZ continues to expect central banks to buy around 600 tonnes of gold through 2030 and beyond..
