(Kitco News) - The gold market hit fresh all-time highs overnight, but not everyone expects the yellow metal to maintain this momentum.
In a report published last week, Hamad Hussain, Assistant Climate and Commodities Economist at Capital Economics, said that he expects the recent highs in gold to represent the 2024 peak heading into the second half of the year.
Looking ahead, he said that he expects gold prices to fall back to $2,200 by the end of the year as higher prices reduce retail demand in critical global markets.
Hussain noted that the main focus remains on Chinese demand, explaining that because of higher prices, consumers won’t be able to maintain the torrid pace of purchases set in the first half of the year.
Although gold prices are down from their daily highs, prices are still up roughly 19% since the start of the year. August gold futures last traded at $2,467.90 an ounce.
“Admittedly, strong demand for gold in China appears to have been one of the factors that pushed prices higher this year and is unlikely to evaporate,” he said in the report. “But we expect historically high gold prices will start to weigh on typically price-sensitive Chinese demand. For what it’s worth, China’s central bank appears to have paused gold purchases after 18 months of additions until May.”
The gold rally started last week as markets began to aggressively price in a September rate cut from the Federal Reserve. However, Hussain said that this could end up being a “buy the rumor, sell the news” type of rally.
“Although lower interest rates would, all else equal, be expected to boost gold prices, the key point is that most of the Fed easing we expect to come is already priced into markets,” he said. “We forecast 10-year Treasury yields to only fall back to 4% by end-2024, down from about 4.2% currently and nearly 5% in October 2023. On balance, we expect reduced appetite for gold in China will likely offset the upward effect of looser monetary policy in the US, and we think gold prices will fall.”
Meanwhile, in a separate report published Tuesday, David Oxley, the company’s Chief Climate and Commodities Economist, said that jewelry demand, an important pillar of support for the global gold market, will weaken in the higher price environment.
“Income growth in key markets will offset some of the demand destruction. But jewelry demand will remain mired at late-1980s levels at best,” Oxley said. “With gold prices set to remain high in real terms, and consumers increasingly able to gain exposure to gold through other channels, gold jewelry demand is likely to trend sideways at best over the coming years.”
