(Kitco News) - Gold’s unprecedented rally of consecutive record highs, with prices now pushing above $2,654, has caught many analysts off guard, forcing them to play catch-up with their year-end projections to try and hit what has now become a moving target.
In his latest notes on gold, published Tuesday, Carsten Fritsch, a Precious Metals Analyst at Commerzbank, said gold’s 27% rally so far this year is its best performance in 14 years.
“In the last nine trading days, there were only two days on which no new high was marked,” he said.
Adding to gold’s momentum, Commerzbank noted that the precious metal is seeing a broad-based rally against most major currencies.
“The strength of the gold price is by no means limited to the US dollar. In numerous other currencies, such as the euro, British pound, Swiss franc, Chinese renminbi, and Indian rupee, the gold price is also at a record level. The only exception is the Japanese yen, where the record high was reached two months ago, so it is not too long ago. In other words, the currencies mentioned are weaker than ever against gold,” he added.
In the current environment, Fritsch said he is upgrading his year-end gold price target to $2,600 an ounce. Fritsch added that he expects gold prices to hold steady at $2,600 by the end of 2025, an upgrade from his previous forecast.
“This is in response to last week's larger-than-expected Fed rate cut and the subsequent rate cuts that are expected to follow, and the resulting lower interest rate level at the end of the year and in the coming year, which we had not previously anticipated,” he said.
Last week, the Federal Reserve embarked on a new easing cycle with a 50-basis point rate cut. The central bank also expects interest rates to fall to 3.00% by 2026.
While Commerzbank is bullish on gold, Fritsch said he still sees limited upside from current prices. The German bank is also not as dovish on interest rates as the markets are. Commerzbank economists see the Fed Funds rate falling to 4.5% this year, then dropping to 3.5% by mid-2025, where they expect rates to stay.
“We see only limited upside potential for gold from now on, as we consider that expectations of interest rate cuts have already run too far ahead in our view. The bond market's reaction to the latest Fed rate cut also calls for caution. Instead of falling, the yield on 10-year US Treasuries rose in response,” he said.
Fritsch also noted that inflation expectations remain elevated, which could threaten the Federal Reserve’s easing plan.
“The market is therefore anticipating that overly aggressive interest rate cuts could reignite inflation. Should that actually be the case, the Fed's room for maneuver on interest rate cuts would be significantly reduced, leading to an adjustment in expectations of interest rate cuts."
Commerzbank is not just bullish on gold. The German bank has also raised its silver price year-end target to $31 an ounce, up from the previous forecast of $30.
“The gold/silver ratio thus remains roughly at its current level. We leave the price forecast for 2025 unchanged, with the exception of a small upward revision for the first quarter to USD 32. For mid-2025, we expect USD 32, and by the end of 2025, USD 33,” he said in the note.
