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After record highs, what’s next for gold? ANZ weighs in

Published 03/14/2024, 02:13 AM
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Investing.com-- Gold prices surged to record highs earlier this week, before swiftly consolidating and settling closer to the $2,150 an ounce levels. Analysts at ANZ Group warned that the yellow metal could pull back further in the short term, but hiked their year-end target for bullion. 

Spot prices hit a record high of nearly $2,200 an ounce at the beginning of the week, buoyed by persistent bets that the Federal Reserve will begin trimming interest rates by June.

But hotter-than-expected consumer price index data for February sullied this notion, any more resilience in inflation likely to deter the Fed from cutting rates early.

ANZ analysts said that a recent rally in gold had “surpassed macroeconomic and geopolitical developments,” and that a near-term pullback in the yellow metal, to around $2,100 an ounce, appeared likely. 

ANZ sets $2,300 year-end price target for gold 

But ANZ analysts also said that they expected U.S. inflation to ease in the coming months, moving back towards the Fed’s 2% annual target and still setting up the bank to begin cutting interest rates from the second half of the year. Specifically, ANZ sees rate cuts coming in July.

They upgraded their year-end price target for gold to $2,300 an ounce from $2,200 an ounce, implying an upside of nearly 6% from current levels. 

ANZ analysts also said that the price pullback was an opportunity to build long positions, and that the recent gold rally also lifted their baseline outlook for the yellow metal. 

Gold investment to also improve as rates fall

ANZ analysts said that investment demand for gold would be a key driver of the yellow metal in the second half of 2024. They noted that higher interest rates had spurred outflows from market-traded gold investment products since 2022, but that these outflows set the stage for a potential rebound.

“Given ETF outflows have been in response to monetary tightening over more than a year, they are likely to reverse once central banks start easing. A less crowded investment in gold presents significant upside potential as this leaves more room for increasing gold holdings.” 

Physical demand for gold, stemming from surprising demand in China and India, was also a key driver of the yellow metal in recent months. But ANZ analysts now expect growth in physical demand to taper off, especially amid slowing consumer spending in China, and to some extent, India.

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