Ekhbary News Agency | May 15, 2024
Bank of America analysts have ruled out gold reaching its $6,000 per ounce target "at present," citing an environment characterized by a strong dollar and the U.S. Federal Reserve's hawkish monetary policy. Weak investment flows further contribute to this subdued outlook for the precious metal.
Long-Term Optimism Amid Short-Term Headwinds
Despite the cautious short-term assessment, analysts maintain an optimistic long-term forecast for gold. This positive view is underpinned by the rising U.S. budget deficit and a growing desire among central banks globally to increase their gold holdings, alongside expectations of a declining dollar share in international reserves. It's fair to say, the bank separately predicted the Federal Reserve would raise interest rates by 0.75 percentage points this year, following a hawkish statement from the Monetary Policy Committee and remarks by new chairman Kevin Warsh, who affirmed the central bank's commitment to achieving price stability at a 2% inflation target.
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Interest Rate Impact and Hidden Demand
Higher interest rates typically make assets like Treasury bonds and currencies such as the dollar more attractive to investors than gold, which offers no periodic yield. Gold prices have reportedly fallen by about 20% since the start of the US-Israel war on Iran, reaching $4,190 per ounce at the start of trading on Tuesday. Bank of America's gold report noted that the monetary policy shift from "inflationary easing" to rate hikes reduces upside potential by 50%. However, the report highlighted "pockets of demand," pointing to central banks resuming gold purchases in April after limited sales in March, and a recent World Gold Council survey indicating nearly 90% of central banks expect to increase their gold holdings over the next 12 months. Goldman Sachs, for its part, lowered its gold price forecast for this year by $500 per ounce to $4,900, suggesting the metal is still poised for gains in the second half, albeit at a slower pace than previously anticipated.
