(Kitco News) - Growing expectations that the Federal Reserve will maintain its restrictive monetary policy through the summer are taking its toll on gold as prices test critical support around $2,300 an ounce.
Gold prices are down nearly 6% from their recent highs above $2,448; however, one brokerage firm expects to see limited downside through the second quarter of the year as the precious metal remains in a bullish uptrend.
In its second-quarter outlook, precious metals analysts at Sucden Financial said they still expect gold prices to push to $3,000 an ounce this year.
Despite the recent volatility as focus returns to the Federal Reserve’s monetary policy stance, the analysts at the British firm said that interest rates and yields are not the prime factors driving gold.
“We expect the current momentum to drive the price of gold higher in the coming quarter,” the analysts said. “The mix of escalating geopolitical tensions, ongoing acquisitions by central banks, and strong physical demand from major Asian economies presents a strong case for further gains. As both investors and central banks look for stability amid a volatile global environment, we expect gold's status as a reliable safe-haven asset to strengthen.”
Along with the ongoing conflict in the Middle East, the analysts said that the impending 2024 U.S. elections will inject further geopolitical uncertainty into financial markets, creating fresh safe-haven demand.
Although the Federal Reserve’s monetary policy stance has had a limited downside impact on gold, Sucden said that eventual rate cuts should provide some support. Although markets no longer expect the U.S. central bank to cut rates in June or July, investors still see some easing after the election.
“Any sign of a potential interest rate cut by the Fed will drive real yields lower, making gold even more attractive as a non-yielding asset. We see little downside to the bullion's performance in Q2'24,” the analysts said.
The analysts are also bullish on silver as they see a price rally surpassing $30 during the second quarter.
“Silver has recently been helped by positive manufacturing PMI figures from the US and China, raising hopes for increased industrial demand. With ongoing geopolitical uncertainties and a positive outlook for industrial demand, we anticipate that a combination of geopolitics and economic factors will influence silver prices this quarter,” the analysts said.”Given that 50% of the silver's demand is attributed to industrial uses, the improved prospects from manufacturers in the world's biggest economies position silver favorably for continued price appreciation.”
While there is a lot of bullish sentiment in the silver market, the precious metal has underperformed gold. Although the gold/silver ratio started to drop in recent weeks, it has moved higher in this new wave of selling pressure. The ratio is currently trading around 86 points, up from its recent lows below 82 points.
