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From: Wall Street

Will gold prices challenge analysts' expectations again?

The most eye-catching recent market performance is gold, and now the rapid rise in gold prices seems to be unstoppable.

While rising geo-risk in the Middle East is driving demand for risk aversion, this rally is also at odds with many other factors.

Neither can it be explained in accordance with the logic of the Federal Reserve policy, nor can the central bank rationalize the record high of gold prices. At the same time, the sharp rise in gold prices is contrary to the ETF outflow of gold, driving a rebound.PowerballwinningnumberslastnightThe "mysterious power" puzzles analysts.

However, with the benefit of hindsight, Wall Street banks raised gold's year-end target price one after another: Goldman Sachs is bullish to $2700, BofA expects to be $3000, and UBS is calling a high of $4000, double the current price.

Goldman Sachs expects to rise to $2700

Goldman Sachs believes that the power of "fear" will push the price of gold to $2700 an ounce by the end of this year, Goldman Sachs said in a report:

Traditional macro factors can no longer fully explain the pace and magnitude of gold's rise, which has risen 20 per cent in the past two months despite expectations of a reduction in Fed interest rate cuts, strong economic growth and a record stock market.

In fact, most of the rise in gold prices since mid-2022 has been driven by new incremental factors, including fears that the monetary system is unsustainable, emerging market central banks' fears of currency devaluations, US fiscal sustainability and general elections.

The "fear" that the monetary system is unsustainable: this fear is structural and market confidence in the international monetary system backed by the dollar is challenged. The recent rise in gold along with real interest rates, for example, suggests a marked shift in risk appetite to physical assets and a challenge to market confidence in the financial system.

Fear of currency devaluation by emerging market central banks: the acceleration of gold accumulation by emerging market central banks is a concern about geopolitics and currency devaluation, which is further exacerbated by the preference to hold gold directly.

In addition, concerns about US fiscal sustainability, coupled with tail risks from the election cycle, can be seen as another feature of brewing structural fears that have a positive impact on gold purchases.

Although interest rate cuts are yet to come, gold will continue to perform well, driven by demand from central banks, the fiscal position of the US and geopolitical conditions.

Bank of America is expected to be $3000 and is also optimistic about silver's performance.

Michael Widmer, a commodities strategist at Bank of America, set a target price of $3000 an ounce and is bullish on silver performance:

Gold and silver are driven by central banks, Chinese investors and a growing number of western buyers. Macro factors are good for gold and silver, including the Federal Reserve will cut interest rates this year, once the cut is implemented, gold purchases should expand, which may further push up the price of gold.

But some traditional supporting factors are weak, and the positive relationship between gold price and physical support of ETF has been broken.

The size of physically backed ETF asset management has been declining, with most of the outflows driven by the liquidation of investment advisers, usually agents of retail investors. Similarly, institutional net commercial futures positions are well below their recent highs.

Silver could also benefit, and stronger industrial demand will also boost the price of silver, which could rise above $30 an ounce over the next 12 months.

UBS shouted a high of $4000

UBS predicts that gold prices could nearly double from now to $4000 an ounce and believes it is not too late to participate in the current rally.

The recent surge in gold prices reminds me of a famous saying: "nothing happened for decades, and then decades happened in a few weeks."

Historical data show that gold prices may be depressed for a long time, but once a breakthrough is made, the rally tends to be rapid and intense.

Gold prices exploded in 2007 and took 27 years to return to their 1980 highs. Recently, gold prices hit new highs in March 2024, and it took 13 years to return to 2011 highs.

When gold prices exploded, they quadrupled in two years (1972-74 and 1978-80) and tripled in three years (2008-11).

Investors can refer to the past for inspiration when deciding whether to chase up or avoid the recent rise in gold prices. Here I define a "breakthrough" as the gold price is 10% higher than the previous historical peak.

If history repeats itself, it is not too late to participate in the gold rebound, and investors holding 2-3 years may see the price of gold double to more than $4000.

The stop signal is a negative real interest rate and a full-blown recession. With real interest rates still high and a recession seemingly far away, it is too early to declare the gold rally over.

Risk reminder and exemption clause

There are risks in the market, so you need to be careful when investing. This article does not constitute personal investment advice, nor does it take into account the special investment objectives, financial situation or needs of individual users. Users should consider whether any comments, opinions or conclusions in this article are in line with their specific circumstances. If you invest accordingly, you will be held responsible.

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