Gold will likely soar to its record high of $2,075 per ounce as the banking turmoil has resulted in instability in the global financial market, analysts have said.
The yellow metal has gained on haven demand and it has resulted in analysts raising its price outlook by $100 following the current bull run.
7.75% monthly gain
On Monday, gold briefly touched $2,000/oz — the highest since March 2022 — but fell 1.3 per cent on Tuesday to $1,952.39 at noon in London. Globally, the precious metal has gained about 7.75 per cent in the past month. On Comex, gold for delivery in April slid to $1,950.60.
On MCX, the April contract for gold, which topped ₹60,000 per 10 gram on Monday, traded below ₹59,200 on Tuesday. Spot 22-carat gold prices on Tuesday declined to ₹57,770 per 10 gram from ₹58,050 on Monday.
“We believe the mounting global financial instability is likely to drive gold prices towards their all-time high of $2,075/oz in the coming weeks, although there is significant resistance around that level as the US dollar remains strong,” said Fitch Solutions Country Risk and Industry Research, a unit of the Fitch Group.
It said contagion risks from the demise of Silicon Valley Bank (SVB) and Signature Bank will be broadly limited.
“If these conditions (financial instability) continue to prevail, they might be supportive of the yellow metal and the all-time high of US$2075 an ounce may come into view,” said IG Bank, a unit of UK-based IG Group.
A pause in hiking would likely provide a further boost to gold prices, said ING Think, an economic and financial analysis wing of Dutch multinational financial services firm ING.
The current surge in the precious metal’s price has led to Fitch Solutions raising its forecast for 2023. “We are revising up our 2023 gold price forecast to $1,950/oz from $1,850 previously as the March 2023 banking turmoil has triggered a rush to safety among investors fearing recession,” it said.
May follow US Fed move
“The unpredictability of the current circumstances has also seen volatility tick higher in equities and gold as represented by the VIX and GVX indices,” IG Bank said, justifying its outlook for gold to top the record high.
Jateen Trivedi, VP Research analyst at LKP Securities, said any hike in line with 25 basis point or lower along with non-visible or hawkish speech will be strongly positive for gold and levels of $2,040-2,050 on Comex and ₹61,500-odd will be seen in coming days.
Prathamesh Mallya, AVP- Research, Non-Agri Commodities and Currencies, Angel One Ltd, said when there is market uncertainty, gold tends to rise. “Yet, with the current banking crisis scenario easing, gold prices may retrace with the US Fed’s rate hike decision on the horizon,” he said.
Fitch Solution said market expectations for continued and aggressive rate hikes by the US Fed have collapsed now. “We have been neutral to bullish towards gold prices since Q422, and remain so for the months ahead,” it said.
However, in the light of high global financial turbulence, it expects “significant price volatility” in the coming weeks. “Nevertheless, we expect gold prices to remain elevated in the coming years compared to pre-Covid levels,” the research agency said.
ING Think said gold ETF holdings last week increased by over 7,00,000 oz to 92.52 million oz.
Wednesday’s FOMC meeting will be important for gold and broader markets with plenty of uncertainty over what the Fed may do given the current market developments, it said.
Less room for more
Trivedi said the broad trend was positive, but with eyes on the US Fed after the banking collapse it looked unlikely that the Fed would have much space left to keep increasing rates.
Fitch Solutions said factors that could drive gold above $2,000 were market panic over banking turmoil, peaking of bond yields, weakening dollar, fears over recession and geopolitical risks.
The US research agency said it does not see gold return to pre-Covid levels and will average $1,737 during 2024-27 compared with $1,393 in 2019.