(Kitco News) - Gold remains trapped in a broad sideways channel and continues to be weighed down by short-term inflation fears, driving hawkish interest rate expectations; however, one international investment firm still expects gold prices to end the year above $5,000 an ounce.
In his latest precious metals report, Lorenzo Portelli, Head of Cross Asset Strategy at Amundi Investment Institute, said that he expects the current energy shock, driven by the ongoing war in Iran, to have only a short-term impact on inflation.
“Looking ahead over the next 12 months, we remain constructive on gold and see potential for prices to move toward $5,500,” Portelli said in the note.
Although surging energy prices due to the chaos in the Middle East have pushed annual inflation to its highest level in two years at 3.3%, core consumer prices have remained only moderately elevated at 2.6% over the last 12 months.
Although core inflation is still above the Federal Reserve’s target of 2%, it has not accelerated.
“Core inflation remains more subdued and better contained, reducing the need for central banks to pursue an even more hawkish stance. In our view, the inflationary impulse triggered by the energy shock is likely to prove temporary rather than persistent,” Portelli said.
At the same time, Portelli noted that investment demand is driven by more than just U.S. interest rates. He added that, with gold prices down roughly 15% from January’s all-time highs, a lot of the “bad news” has already been priced into markets.
“Central bank demand is likely to remain strong, especially among emerging market authorities that continue to diversify reserves away from traditional currencies. We do not see this trend reversing anytime soon. Gold remains a strategic asset for reserve managers seeking to reduce dependency on the US dollar and enhance portfolio resilience,” he said.
At the same time, Portelli noted that rising sovereign debt levels and growing liquidity issues in private credit markets will drive more interest into hard assets like gold, even if prices remain volatile in the short term.
“In the near term, some central banks may choose to use part of their gold holdings tactically to defend their currencies amid heightened volatility, including risks stemming from geopolitical tensions in the Middle East. While such actions are possible, they should not be interpreted as a sign of a structural shift away from gold. Rather, they reflect short-term policy management in a more uncertain environment,” he said. “Ultimately, we continue to view gold as a valuable safe-haven asset. It is not a universal hedge against every market shock, but it remains an effective protection against systemic risk, currency weakness, and policy uncertainty.”
