(Kitco News) -Many traditional correlations have broken down as gold has rallied to record levels in the last two months. While many experts believe the market still has significant potential, one international bank is warning investors that these correlations could reestablish themselves later this year.
Although gold prices have room to move higher in the near term, Georgette Boele Senior Economist Sustainability Research at ABN AMRO, said that she is not changing her forecast for gold to end the year at $2,000 an ounce.
“The trend in gold prices is positive and the sky seems to be the limit,” she said in her latest note. “However, we remain cautious for the following reasons. It is unusual for gold prices to have positive relationships with the US dollar and 5yr and 10yr US real yields. Even though these changes have occurred in the past, they tend to be temporary in nature, meaning that they could last around 3 to 6 months. However, the 2y US real yields have declined which could have been a support for gold prices.”
Boele’s comments come as gold prices consolidate near record highs around $2,400 an ounce. June gold futures last traded at $2,406.60 an ounce, up 1% on the day.
Gold has hit record highs even as markets have started to push back expectations for the start of the Federal Reserve’s easing cycle. A June rate cut was priced out of the market last week following hotter-than-expected inflation data.
“Gold prices should be lower and not higher,” she said.
Boele also highlighted the fact that as safe-haven demand and momentum drive prices higher, the gold market is not seeing broad-based buying. She noted that investors in gold-backed exchange-traded funds also continue to liquidate their holdings.
“Investors seem to have bought gold for safe-haven reasons and have only bought certain forms of gold,” she said in her note. “They also have bought gold options with upside strikes for December, for example, with strikes of USD 2,500 and 3,000 per ounce.”
She also noted that while central banks continue to buy gold, that doesn’t justify current prices.
Boele also noted that there aren’t even any supply disruptions in the marketplace to justify these record prices.
“During the COVID crisis, physical gold experienced a shortage. This translated into high gold demand on the futures market and a large premium to buy physical gold. So far this year, speculative positions on the futures markets have not risen strongly,” she said. “There is no shortage in physical gold at the moment.”
