Despite a temporary dip earlier in the week, the outlook for gold remains robust, with analysts projecting that gold prices could soar to as much as $3,000 per ounce. This surge is underpinned by continuous central bank purchases and gold’s enduring role as a hedge against inflation.
On Friday, bullion struggled to maintain its position near $2,350 as the US dollar strengthened following unexpectedly high US core Personal Consumption Expenditures (PCE) index data for March. According to the Commerce Department, headline inflation rose by 2.7% annually, while the core PCE, which excludes food and energy, climbed by 2.8%.
Gold reached an all-time high of $2,431.29 on April 12. However, it experienced its largest single-day drop since June 2022 on April 23, falling by 2.8% to $2,324.96 per ounce. This decline was attributed to reduced safe-haven demand amid decreasing conflict risks in the Middle East.
Despite these fluctuations, gold has found solid support around the $2,300 level. “While there’s always a possibility for a more significant correction, the recent pullbacks have attracted investors looking to buy on dips,” noted Fawad Razaqzada, a market analyst at City Index and Forex.com. He highlighted that gold prices have remained resilient even amidst rising yields and a strong dollar, which typically pressure gold downward.
The market may continue to hit new highs in the coming months, driven by fundamental factors such as ongoing central bank purchases and inflation hedging. Gold has risen nearly 13% this year, bolstered by robust demand from Asia, particularly China, where gold buying has become increasingly popular among younger demographics.
The People’s Bank of China has been consistently increasing its gold reserves for 17 months. “China is currently ranked sixth globally in gold holdings and is poised to surpass major holders like Russia, France, or Italy,” stated Hani Abuagla, a senior market analyst at XTB Mena. He also suggested that the official figures might underreport the actual volume of gold purchased by China.
Geopolitical tensions in the Middle East and Ukraine, along with the prospect of monetary easing by major central banks, have further supported the rally. However, gold’s appeal among ETF investors has waned, with holdings in bullion-backed ETFs falling to their lowest levels since 2019 in mid-March, despite a slight recovery.
“Gold is seen as a reliable inflation hedge, which has contributed significantly to its strong performance in recent years,” Razaqzada explained. Despite concerns that higher yields and reduced expectations for Fed rate cuts in 2024 might bolster the dollar and weigh on gold, the impact has not materialized as anticipated.
Investors also remain wary of rising US government interest payments and potential geopolitical de-escalations, which could diminish the demand for gold as a safe haven. Nonetheless, compared to other assets like copper, oil, and the S&P 500, gold appears to have room for further appreciation.
“The $2,500 per ounce mark doesn’t seem far off, and many financial institutions are already setting $3,000 as a conservative target for 2024,” added Abuagla.
As such, while gold prices may have hit a snag, the long-term perspective remains bullish, with analysts advising that gold should be part of a diversified investment portfolio, particularly in times of economic uncertainty and inflation.
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