Gold prices traded near record-high levels on Monday after a sharp rally led by safe-haven demand amid ongoing conflict in the Middle East. Gold rate has rallied 20% over the past two months and analysts expect further gains in the bullion prices.
While spot gold hit an all-time high of $2,431.29 last week, US gold futures were trading around $2,373.30 an ounce on Monday.
Goldman Sachs has raised its gold price forecast to $2,700 per ounce by year-end as against a target of $2,300 previously as it believes the yellow metal is in an unshakeable bull market.
The brokerage firm believes gold’s relative stability in the aftermath of last week’s stronger-than-expected US CPI print was yet another demonstration that the metal’s bull market is not being driven by the usual macro suspects.
Despite the market pricing progressively fewer Fed cuts, stronger growth trends and record equity markets, gold has rallied 20% over the past two months.
“The traditional fair value of gold would connect the usual catalysts – real rates, growth expectations and the dollar – to flows and the price. None of those traditional factors adequately explain the velocity and scale of the gold price move so far this year. Yet that substantial residual from the traditional gold price model is neither a new feature nor a sign of overvaluation,” Goldman Sachs said in a report.
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The majority of the upside in the gold rate since mid-2022 has been driven by new incremental (physical) factors, not least a significant acceleration in EM Central Bank accumulation as well as Asian retail buying. Those factors remain well affirmed by current macro policy and geopolitics, it added.
Moreover, with Fed cuts still a likely catalyst to soften the ETF headwind later in the year, and right tail risk from the US election cycle and fiscal setting, gold’s bullish skew remains clear.
Iran-Israel Tensions Impact
The ongoing conflict between Iran and Israel has heightened tensions in the Middle East and markets fear the further escalation in the situation. Given the lingering geopolitical tensions, gold prices are expected to see short-term gains amid safe-haven demand for the yellow metal.
Gold prices were trading with a positive bias on Monday as the Iran-Israel crisis fueled a rush into safe-haven assets. Analysts believe the overall trend in gold rate remains bullish.
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What can pause gold rally?
On the contrary, according to Goldman Sachs, the potential factors that can help to at least restrain gold rate upside, if not generate a bearish reversal, could be a peaceful resolution to ongoing issues in the Middle East and Ukraine, and a settling in associated sanctions risk, major EM Central Banks concluding their gold buying programmes, a settling in China growth concerns, and a significant hawkish Fed adjustment leading to hikes.
“This would likely at least present a catalyst for renewed ETF selling and Western spec liquidation. The reality though is that the near-term potential for a combination of these developments is low, which underpins our expectation for continued bullish momentum in the gold price,” Goldman Sachs said.
Disclaimer: The views and recommendations made above are those of individual analysts or broking companies, and not of Mint. We advise investors to check with certified experts before making any investment decisions.
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