As global banks face challenges and the U.S. Federal Reserve prepares to make another interest rate decision, gold prices have the potential to break existing records and maintain those highs. CMC Markets' Tina Teng suggests that an earlier-than-anticipated shift in the Fed's rate hikes could lead to another surge in gold prices, as the U.S. dollar and bond yields may further decline. Teng predicts gold could trade between $2,500 and $2,600 per ounce.
Amid the closing of Silicon Valley Bank and Credit Suisse's collapse, investors have turned to gold and Treasurys, resulting in gold trading at $1,940.68 per ounce. Gold reached its highest value since March 2022 on Monday, surpassing $2,000 per ounce, and has increased by approximately 10% since early March when SVB faced a bank run.
Refinitiv data indicates that gold's all-time high occurred in August 2020, at $2,075 per ounce. Central bank demand is likely to sustain this upward trend. Wheaton Precious Metals CEO Randy Smallwood believes that ongoing central bank gold purchases will support long-term prices and anticipates gold prices reaching $2,500.
Gold demand reached an 11-year peak in 2022 due to massive central bank acquisitions, as reported by the World Gold Council. In 2022, central banks purchased a record-breaking 1,136 tons of gold, the highest amount in 55 years.
In late March, Fitch Solutions forecasted gold reaching $2,075 "in the coming weeks," attributing this outlook to "global financial instability." The firm also anticipates gold prices will remain elevated in the coming years compared to pre-pandemic levels.
Craig Erlam, a senior market analyst at foreign exchange company Oanda, concurs with Fitch's optimistic view. Erlam suggests that the combination of factors, such as interest rates nearing their peak and potential cuts due to recent developments in the banking sector, could lead to a strong performance for gold in the coming months, possibly resulting in new record highs.
Investors are keeping a close eye on the Federal Reserve's upcoming decisions and their implications for gold prices. The Fed commenced a two-day meeting on Tuesday, with many expecting a 25 basis point rate hike on Wednesday, although analysts' predictions differ.
MKS Pamp's head of metals strategy, Nicky Shiels, highlights that the Fed will need to choose between higher inflation or a recession, both of which are bullish for gold. Shiels anticipates gold prices could rise to $2,200 per ounce.
A potential weakening of the dollar could also bolster gold prices, according to James Steel, HSBC's chief precious metals analyst, who expects a 25 basis point hike from the Fed.
Steel noted the unusual simultaneous rise in gold prices and the dollar last week, explaining that investors typically gravitate towards the perceived safety of U.S. Treasurys and gold during periods of financial stress. "This scenario does not happen often, but when it does - it is always a sign of elevated investor concerns," Steel said.