(Kitco News) - Asian investors, led by Chinese consumers, drove gold prices to record highs in the first half of the year. Now, one international bank expects Western investors to pick up the baton and push gold prices further into record territory.
Last week, Bernard Dahdah, a Precious Metals Analyst at Natixis, published an updated price forecast. He sees gold averaging around $2,600 an ounce in 2025.
"After a strong start to the year, the Chinese market has now cooled off. One indicator that reflects this is the Shanghai gold premiums, which have been mainly trading at a discount for most of August," he said in his report. "Meanwhile, since the nearly 9% increase in prices since July, we have seen physically-backed gold ETFs (mainly held by Western investors) finally rise again after almost a full year of outflows."
Dahdah added that his bullish outlook comes as market drivers return to traditional fundamentals, supported by a weaker U.S. dollar and falling bond yields. However, he noted that there could be a limit to how much interest rates and yields will fall, at least through the rest of 2024.
Following disappointing employment data, with the number of job openings dropping in July, market expectations for a 50 basis point cut jumped sharply. According to the CME FedWatch Tool, markets now see a 45% chance of aggressive easing later this month.
However, Natixis foresees a slower downward path for interest rates.
"Our forecast differs from the consensus in that we believe the Fed will not view the economic situation as dire enough to warrant a rapid succession of cuts and will still be concerned with lingering, above-target inflation," he said. "While the jobs market is slowing, it is normalizing to a pace consistent with target inflation, not yet descending into outright weakness. This dynamic will allow the Fed to ease policy incrementally, with a 25bp cut in September and another in December for a total of 50bps in 2024."
Dahdah added that the French bank expects interest rates to fall to 3.25% in 2025, which will keep gold prices well-supported.
"Our view is that for the remainder of the year, prices will hover close to current levels as much of this year's rate cuts have already been factored in. That said, next year, we could see prices rising more rapidly, especially during the second half of the year," he said.
