- Gold is climbing to record highs, with the April gold contract closing above $2,100 per ounce for the first time.
- Citi analysts describe themselves as “medium-term bullion bulls” and view gold as a “hedge against recession” in developed markets.
- Recent moves have been attributed to stronger market expectations of a rate cut in June by the Federal Reserve.
Gold prices rose on Tuesday after futures prices for the precious metal carved out fresh records in the previous two sessions, with analysts seeing strength that will last at least into the second half of the year.
On Monday, it closed above $2,100 per ounce for the first time and rose 0.37% to $2,134.2 at 1:15 PM in London. It traded up 0.7% at $2,129, although market observers note that in real terms, adjusted for inflation, gold is well below past peaks.
In a note on Monday, Citi analysts described themselves as “medium-term bullion bulls,” citing a 25% probability that gold will reach a record average of $2,300 per ounce in the second half. Their base scenario remains $2,150, and they reiterated a “wildcard” call reaching $3,000 in the next 12-16 months.
Citi describes gold as a “hedge against recession” in developed markets and increasingly sees tailwinds from uncertainty surrounding the U.S. elections in November.
Berenberg analysts also noted on Monday that a Donald Trump victory in the election would provide a “significant boost for gold,” with additional support for the safe-haven asset from the volatility of ongoing wars in Ukraine and Gaza.
Consequently, they see momentum ahead for gold-related stocks, which they say have recently “disconnected from the underlying commodity” despite recent near-record prices.
“This is primarily due to better-than-expected economic performance by the United States, as well as a persistently hawkish stance on monetary policy by the U.S. Federal Reserve,” they stated.
Rising interest rates are generally linked to a decline in gold, as higher-yielding assets become more attractive, with the recent price rally both at the end of 2023 and in recent days driven by expectations of imminent rate cuts by the Federal Reserve.
On the other hand, bullion is often viewed as a safe haven in times of economic stress. The non-yielding asset is also seen as a solid bet when yields are suppressed by aggressive monetary policy, such as rate cuts and stimulus. Gold’s gains in the last two sessions have been linked to stronger bets on a June cut by the Fed.
Market pricing indicates a 55% probability of a 25 basis point cut in June, according to the CME FedWatch Tool
“We believe Fed policy will remain fundamental to gold price prospects in the coming months, and we expect gold prices to remain volatile in the coming months as the market also reacts to macro factors and geopolitical events,” ING strategists said on Tuesday.