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Will Gold Ounce Prices Exceed $2500 This Year?

gold ounce prices $2500
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EDITOR'S NOTE: Having spent the last month bouncing back and forth within a tight trading range, gold seems to have found a direction; its upside breakout confirmed. It cleared the near-term $1,968 price ceiling yesterday, and its upward trajectory appears to be following up in this morning’s session. Yet, watch the volume, for its indication of buying pressure hasn’t quite surged to match its advance; at least not yet. The immediate price target many investors are looking at is around its previous $2,000 an ounce high. Goldman Sachs, however, just extended the intermediate-term goal post. They’re projecting gold ounce prices of around $2,500. The megabank provides three rationales to back its updated forecast. Take a look at them, and think about the flip side of what this might mean for the markets and the economy at large. Time to seek safety in the form of a financial hedge?

Gold ounce prices have surged nearly 18 per cent thus far in calendar year 2022 (CY22) to around $2,050 per ounce in the backdrop of the ongoing Russia –  conflict and there is more headroom over the next few months, believe analysts at Goldman Sachs, who expect the prices to rise another 25 per cent to $2,500 an ounce by the year-end.

ALSO READ: Gold trading at Rs 53,890 per 10 grams; silver selling at Rs 70,000/kg

Earlier in January,  had raised their 12-month  price forecast to $2150 per troy ounce on the view that an impending US growth slowdown would lead to increased concerns of a US recession and incentivize 300 tons of inflows into  ETFs.

At the beginning of the Russia  tensions,  had suggested that the resulting rally in commodities could further deteriorate the developed market (DM) growth inflation mix, increase concerns of a US recession, and push gold ETF inflows to 600 tons and, in turn, push the  to $2,350 an ounce in 12-months. This scenario, it said, is now becoming the base case.

“The last time that we saw all major demand drivers accelerate simultaneously was in 2010-2011 when gold rallied by almost 70 per cent. Given the material upward revision in investment and demand assumptions, we now upgrade our 3 /6 / 12-month gold targets from $1950/2050/2150 an ounce to $2300/2500/2500 per ounce,” wrote Mikhail Sprogis, Sabine Schels and Jeffrey Currie of  in a recent note.

ALSO READ: Palladium charges to all-time high on Ukraine, gold tests $2,000/oz

Gold ETFs, Goldman Sachs believes, are building aggressively for the first time since 2020. "This momentum is only set to accelerate as our Strategists think the market has not yet priced in a US growth slowdown, which our economists believe is needed to curb inflation," it said.

That apart, Goldman Sachs believes gold’s typical negative relationship with real rates would break down as they become a poor barometer of fear when the US Fed is hiking rates. "As we found in the past,  tend to rally during Fed rate hiking cycles," the note said. GRAPHIC: GOLD & FEAR OF RATE HIKE

Another fallout of the Russia- conflict, Goldman Sachs said, will be that Russia will not only not sell its gold reserves but will likely return to being a large gold buyer after the Ruble stabilises. Given Russia’s experience with forex reserves, it is possible that other countries may prefer to hold a larger share of their reserves in gold over the long run as well, it said.

Central bank & retail demand

In the second half of 2022 (H2-CY22), Goldman Sachs expects the gold demand by central banks to reach its historical high level as they globally have both strong diversification and geopolitical reasons to shift reserves into gold.

“We expect that by the second half of 2023, global central bank demand hits a record 750 tons annual rate versus 450 tons in 2021. This, together with an upward revision in our ETF build forecast should push year-end  to $2500 per troy ounce,” the note said. CLICK HERE FOR A GRAPHIC ON CENTRAL BANK DEMAND

Besides the central bank demand, Goldman Sachs expects the retail demand, too, to remain robust across Asia going ahead in the backdrop of a strong economic recovery and lack of investment options.

“China is stimulating its growth and India is benefiting from a Covid infection recovery and not yet tightening monetary policy. In Q4-2021, gold consumer demand reached the highest level since 2013. In China, property prices are falling and equities were impacted last year by regulatory tightening. At the same time, interest rates in both India and China remain near historical lows in an environment of high inflation,” the report added.

Originally published on Business Standard.

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