(Kitco News) - Gold prices continue to hold support around $4,800 an ounce, and although the precious metal faces further headwinds in the near term, one bank continues to expect prices to move higher in the second half of the year.
In her latest gold report, Suki Cooper, Global Head of Commodities Research at Standard Chartered Bank, said that the precious metal appears to be building a tentative floor; however, uncertainty around the war in Iran and inflation fears could put downside pressure on gold in the next couple of months.
In its official forecast, Standard Chartered sees gold prices averaging around $4,605 an ounce in the second quarter, with prices rising to an average of $4,850 an ounce by the third quarter.
However, Cooper added that gold’s trend currently relies on the tentative ceasefire and peace negotiations in the Middle East. Despite ongoing talks, travel through the Strait of Hormuz remains closed, further impacting the global supply chain.
“Given the fragile ceasefire and switch to focus on real yields, gold is not yet out of the woods, and liquidity needs could continue to pressure prices further. But the structural drivers remain intact, and we expect gold to resume its uptrend to retest highs in the coming months,” Cooper said in her note.
At the same time, Cooper also noted that inflation fears have contributed to gold’s disappointing price action. She explained that gold currently has a -24% correlation with five-year real yields, compared to 0% from before the conflict started.
“Markets are torn between pricing in inflation risks and negative output growth,” she said. “Gold tends to outperform amid the risk of unexpected, elevated inflation and also during U.S. recessionary periods. However, the gold market is not currently focused on these risks, suggesting there could be further upside risk in the coming months. The policy response will be key, however, as gold transitions away from moving in step with risk assets.”
Despite the near-term uncertainty, Cooper also said that she sees some positive developments in the gold market, as speculative positioning has decreased, taking some froth out of the marketplace.
She added that investor demand is also improving, as preliminary data on gold-backed exchange-traded funds show renewed inflows.
“We still believe there is a loss-making overhang (we estimate 53t), but there are signs that liquidity needs may be stabilizing,” she said.
