Gold’s haven appeal burnished by drumbeat of growth warnings
Gold could be heading for another rally, with warnings over a global economic slowdown paving the way for a fresh push toward $2,000 an ounce.
Bullion is down about 10 per cent from a peak in mid-March, after the concerns that the Russia-Ukraine crisis might sprawl into a broader conflict dissipated. But with top banking executives now warning about fresh economic shocks, the situation is ripe for stagflation, which would be bullish for gold.
“After decades of massive deficit spending and ultra-loose monetary policies, we are heading toward a period of stagflation,” said Gregor Gregersen, founder of Silver Bullion. “In this kind of environment, safe-haven assets like physical gold and silver are some of the best things you can own.” He predicts gold and silver could rise to around $2,000 an ounce and $26 an ounce respectively by the end of the year, and could exceed those levels should there be unexpected “black swan” events.
On Tuesday, spot gold edged down 0.2 per cent to $1,837.93 an ounce at 8.39am in Singapore. The Bloomberg Dollar Spot Index also slipped 0.2 per cent. Silver declined to about $22 an ounce and palladium and platinum fell.
According to Rhona O’Connell, head of market analysis for regions including Asia at StoneX Group, bullion prices are facing resistance at $1,930 an ounce, but if that level is cleared then $2,000 could be reached, propelled by technical trading.
The gold price decline in recent months has come as the US central bank started its hiking cycle, when officials raised rates for the first time since 2018 and signaled increases at all six remaining meetings this year.
Goldman Sachs Group president John Waldron and JPMorgan Chase & Co.’s chief executive officer Jamie Dimon last week both warned of shocks to the economy amid challenges including risks from inflation and the fallout from the crisis in Europe. These uncertainties could well see more investors seeking a store of value.
Still. the hawkish Fed, higher real rates, and a relatively robust US dollar backdrop are among factors weighing on bullion, said Citigroup, which cut its three-month gold point-price target by $300 to $1,825.
The bank has kept its six-to-12 month forecast at $1,900, with elevated asset market volatility and stagflation tail hedges likely underpinning support at around $1,800, according to a June 1 report. Citigroup shifted its base case outlook to neutral for the rest of this quarter.
