$10,000 expectations in spite of bear market
Pakin Songmor | An | Getty Images
The sharp sell-off in gold may have pushed it strongly into bear market territory, but some market veterans are sticking to ambitious long-term forecasts.
Bullion continued its decline on Tuesday; After falling as much as 2%, spot prices pared their losses and traded down 1.5% to $4,335.97 per ounce. Silver also fell as futures fell nearly 2% to $4,317.80.
The move left gold firmly in the bear market, down nearly 21% from its late-January peak of $5,594.82.
According to many strategists, the recent decline reflects short-term disruptions rather than any change in gold’s underlying fundamentals. Ongoing geopolitical risks, strong central bank demand and expectations for a weak US dollar continue to support the structural bull case for the metal. Gold has traditionally been viewed by investors as a safe haven in times of instability.
“We remain at $10,000 by the end of the decade,” Ed Yardeni, president of Yardeni Research, told CNBC via email, although he lowered his year-end forecast to $5,000 per ounce from $6,000.
The latest decline came as investors opened positions on a strengthening US dollar and tentative signs of easing geopolitical tensions after US President Donald Trump said on Monday he was ordering a five-day pause on planned attacks on Iran’s energy infrastructure.
Market participants said the strengthening of the US dollar may have triggered profit taking in gold.
Gold prices since the beginning of the year.
The dollar index has strengthened around 3 percent since the war began on February 28.
Despite the short-term weakness, strategists generally view the sell-off as an opportunity rather than a turning point.
Justin Lin, investment strategist at Global
“The selloff appears to be driven by a combination of short-term sensitivity to higher interest rates, portfolio rebalancing due to equity market weakness, and a degree of complacency regarding the ongoing conflict in Iran,” Lin said via email.
Lin emphasized that the bullish outlook is not dependent on war-related risk premiums.
“Rather, it is built on a broader backdrop of persistent geopolitical uncertainty, ongoing central bank demand and persistent inflows from Asian gold ETF investors,” he said.
This structural demand, especially from emerging market central banks seeking to diversify reserves, is expected to create a floor in prices. Lin added that there is a “high probability” that central banks will step up purchases after the recent sell-off and help stabilize the market.
Standard Rented it also remains constructive, citing similar long-term factors.
“We remain constructive on gold over the long term, supported by structural factors such as strong Emerging Market central bank demand and investor diversification in the face of geopolitical risks,” the bank’s Senior Investment Strategist Rajat Bhattacharya said in an email to CNBC.
The bank expects gold to recover towards $5,375 per ounce over the next three months once the current deleveraging phase ends, with technical support seen around $4,100.
The main catalyst for the recovery could be the weakening of the US dollar, as markets anticipate that the Federal Reserve will eventually cut interest rates.
“A weaker US dollar should once again support gold prices,” Bhattacharya said.
