UBS strategist recently stated that despite a slight decline in gold prices at the beginning of the year, this year's gold price may be about 10% higher than the current level in the context of potential interest rate cuts.
As of publication, spot gold has reported a price of $2021 per ounce, down nearly 2% since the beginning of the year and a 5% drop from its historical high in December 2023. In response, UBS pointed out in its report that the recent downward trend is "not worth mentioning" compared to a cumulative increase of nearly 15% in 2023.
UBS stated that the market should not underestimate the support of future Federal Reserve monetary policy for gold prices. Strategists added that gold prices are currently above the psychological level of $2000 per ounce, and despite recent fluctuations, the bank still predicts that they will rise to $2250 by the end of this year.
Scotiabank has maintained a more cautious attitude towards the outlook, but has also raised its gold price guidance. In a report released today, the bank raised its price expectations for gold and silver for 2024 and 2025, with analysts predicting that gold will continue to hold steady at the $2000 mark by the end of the year, compared to the previous $1900 mark.
Media analysis suggests that the price of gold may be boosted by multiple factors, including geopolitical instability and financial market uncertainty, which will increase the attractiveness of gold as a "safe haven" asset. In addition, the expectation of the Federal Reserve lowering interest rates within the year may push up commodities denominated in US dollars.
But interest rate cuts may not come soon. According to the "Federal Reserve Watch" tool of the Chicago Mercantile Exchange, traders believe that the probability of the bank's March meeting initiating a rate cut cycle is only slightly higher than 40%, compared to over 80% in the previous week. Given that there will be two key data sets for US GDP and PCE later this week, the probability may still change.
UBS explained that its expectations for gold prices are based on the premise of the Federal Reserve's "interest rate cuts starting in May" and "cumulative interest rate cuts of 100 basis points throughout the year", as this path will put pressure on the US dollar and real interest rates, triggering new demand for gold, "especially from gold ETFs."
According to data from the World Gold Council (WGC), gold broke record highs several times in December last year and reached its highest closing price of $2078 per ounce. Analysts believe that besides the potential interest rate path of the Federal Reserve, the impact of the Israeli Palestinian conflict on global commodity volatility is difficult to ignore.
Caixin News Agency previously mentioned that multiple experts have expressed that the further expansion of the Israeli Palestinian conflict may become the largest "grey rhinoceros" event in 2024. The latest news shows that a spokesperson for the Yemeni Housa armed forces issued a statement on Monday (January 22) stating that they had launched a missile attack on a US cargo ship, the "Sea Jazz", in the Gulf of Aden.
UBS strategist wrote, "In our view, sustained macro factors and rising geopolitical risks continue to justify holding gold exposure for hedging and diversification purposes."