Gold prices will rally to record highs in the final quarter of this year with forecasts by Canadian bank TD Securities calling for £1,641 ($2,100) by December.
The news of a path to a new all-time high comes as economists and analysts question the accuracy of the Federal Reserve’s latest dot plot chart which indicates that a further two .25bp rate increases will take place in 2023.
Chairman Powell says that the median dot plot points to at least two additional rate increases being required, but consensus appears to be lacking even amongst policy makers. Two say no more rate increases should be needed but other FOMC members see one to four increases taking place as a result of the dot plot.
This lack of consistency means uncertainty continues to surround future policy, leaving markets to try and decipher what the Feds’ actual course of action will be. This creates prime conditions for a gold run, says Bart Melek, head of commodity strategy at TD Securities.
“Since the spread of members’ dots is so wide, ranging from 3.625% – 5.875% for next year, the median estimate is not all that relevant,” he said.
“Given the world is looking like the Fed will not actually pull the trigger two more times, as suggested by the ‘meaningless’ median dots, our outlook for the yellow metal is positive. Gold could well rally on any data showing inflation pressures are easing, and the economy is reversing gears. We see gold averaging £1,641/oz ($2,100/oz) in the final three months of the year, as we suspect the U.S. central bank will cut rates aggressively thereafter, potentially before the two percent inflation target is reached.”
ING chief international economist James Knightley says that signals remain mixed in the short term with the potential for additional rate hikes ahead of a slowdown. He notes, “The Federal Reserve’s hawkish hold yesterday suggests an inclination to hike again in July, but today’s mixed retail sales and manufacturing data fail to offer a clear steer. The grinding higher in jobless claims is perhaps the bigger story, but it probably won’t be enough to lead to a sizeable slowdown in payrolls growth to deter the Fed just yet.”
This could be further good news for gold says MKS PAMP’s Nicky Shiels who expects that the longer gold can continue to hold steady in the face of hawkish signals, the stronger its rally will then become when those signals change. She explained, “On the surface, it’s a bearish precious outcome, but the longer gold can’t go down, [it] must go up. The thinking is that gold prices will read through their hawkish rhetoric/talk, and at the core is, the Fed has paused (and can pause again) = therefore, they’re done.”
ANZ economists see a turning point mid-summer, saying “Our economic forecasts expect household and labour demand to weaken over the summer” – an expectation that means we could be just weeks away from major gold price increases. Don’t delay. Buy gold now.
