Goldman Sachs and Deutsche Bank Jointly Cut Gold Targets
Deutsche Bank has cut its gold price forecast by 22% as investors grow cautious about the direction of US monetary policy. In its latest projection, gold is expected to reach US$4,300 per troy ounce in the third quarter and US$4,800 in the fourth quarter. While this target still suggests upside potential from the current price of near US$4,100, Deutsche Bank's outlook is now much more cautious than before.
This revised projection comes as the market is increasingly confident that the Federal Reserve will not ease policy anytime soon. In fact, following the Fed's last meeting, several US central bank officials have begun to show support for the possibility of an interest rate hike. Fed Chairman Kevin Warsh also reiterated his commitment to restoring price stability, prompting investors to reassess the risk of prolonged high interest rates.
According to Deutsche Bank analyst Michael Hsueh, changing expectations regarding Fed policy and still-strong US economic data are the main factors weighing on gold prices. In Deutsche Bank's base case scenario, the fourth-quarter target of US$4,800 is based on the assumption that the Fed will maintain interest rates. However, if the Fed actually raises interest rates three to four times, gold risks a deeper decline, approaching US$3,800 per troy ounce.
Pressure on gold also comes from weakening investment demand. Continued selling of gold-backed ETFs indicates that the support that typically supports the precious metal is waning. In China, the discount in domestic gold prices to Comex prices also indicates that imports are no longer a strong support for the market. This situation has caused gold to lose some of its key pillars of support amidst the strong US dollar and high bond yields.
Nevertheless, Deutsche Bank still sees one positive factor remaining strong: demand from central banks. Central bank gold purchases are expected to continue for quite some time as many countries continue to seek reserve diversification amid global uncertainty. However, in the short term, the gold market will still face pressure from the US dollar, the Fed's hawkish stance, and declining investor interest in gold products.
Spot gold prices fell to around US$4,090 per troy ounce on Tuesday, while silver also fell sharply, as its movements tend to follow gold's greater volatility. After briefly hitting a record near US$5,600 in late January, gold has now weakened more than 5% year-to-date. This means that while the long-term outlook is not completely lost, the gold market is currently entering a phase of correction and significant adjustment in expectations. (arl)
Source: Newsmaker.id
