(Kitco News) - Gold prices continue to consolidate above $3,300 an ounce; however, one bank expects it’s only a matter of time before prices move higher as economic uncertainty drives investor demand.
In their latest note on gold, commodity analysts at Société Générale said a perfect storm is brewing in the gold market, with central bank demand, interest in gold-backed exchange-traded products, and speculative positioning all aligning on the bullish side.
The optimistic outlook comes as spot gold last traded at $3,331.15 an ounce, up 0.24% on the day.
Speculative positioning is particularly noteworthy, as money managers have re-entered the market after eight consecutive weeks of decline, which had dragged bullish bets to their lowest level in over a year. Hedge fund positioning, among the most volatile in the market, saw many investors take profits after prices hit an all-time high of $3,500 in April.
“The number of funds increasing exposure via gold long futures positions was very significant over the course of the week, rising from 88 funds to 106—perhaps pointing to the fact that profit-taking may be over and bullish momentum is back,” the analysts said.
Gold ETF demand has also been volatile, with the market seeing its first net outflows in five months this May. However, the analysts at SocGen expect long-term demand to remain well supported as economic and geopolitical uncertainty—exacerbated by President Trump’s global trade war—continues to loom large.
“Global uncertainty measures have been incredibly elevated over the last six months, and we believe they are very unlikely to normalize anytime soon,” the analysts noted. “Today’s globally measured level of uncertainty is just 100 points (20%) below the levels seen during the Global Financial Crisis (GFC) of 2008.”
Although ETF demand has risen significantly this year, holdings remain well below the records set in 2020—and are even lower than levels observed in 2009, during the GFC.
The final pillar of support for gold remains central bank demand. SocGen analysts expect official gold reserves to continue rising.
“We believe there will be continued flows into gold, as dollar diversification remains a key objective for many countries,” they said.
In March, the French bank raised its gold price forecast, expecting the precious metal to average around $3,300 an ounce for the year. It was also among the first institutions to warn that gold has a credible path to $4,000 an ounce.
While the bank remains bullish on gold, it is less optimistic about silver. It cautioned investors that silver may be vulnerable to profit-taking as the market appears overbought.
Silver prices are down slightly from Monday’s 13-year high. Spot silver last traded at $36.467 an ounce, down 0.70% on the day.
