Gold prices are on a bullish trajectory, with one market veteran predicting the precious metal could reach $2,600 per ounce within a year. Juerg Kiener, chief investment officer at Swiss Asia Capital, told CNBC's "Street Signs Asia" on Wednesday that his forward curve analysis for gold "looks fantastic."
"If you look at your forward curve for a year it's about 26 [$2,600]. I think we might be really fast as we take 23 [$2,300] out, it has a lot of pent-up demand," Kiener said. He added that an inventory collapse in the gold market is putting "a lot of derivative structures at risk," potentially leading to a short squeeze that could drive prices even higher.
Gold has been hitting successive record highs this year, with spot gold breaking above $2,300 on Thursday before easing slightly. Early Friday, it was trading around $2,278 per ounce. The precious metal's climb has been attributed to various factors, including geopolitical tensions, a shift to a "multipolar world," changing international trade structures, and governments "printing money like there's no tomorrow," according to Kiener.
Geopolitics has been cited by several analysts as a basis for a medium-term bullish case for gold, amid the wars in Gaza and Ukraine, the upcoming U.S. election, and the possibility of recession in major economies. Another commonly cited factor is the likelihood of interest rate cuts by the U.S. Federal Reserve, with three expected this year. Lower borrowing costs tend to increase the appeal of gold as investors shift away from fixed-income assets like bonds.
Kiener also noted a "massive flow of precious metal leaving the West," with a "real shift" toward growing demand in Asia and the BRIC countries more broadly. Chinese investors and households showed increased demand for gold in 2023, according to the World Gold Council, as the country's property market remained in turmoil and stock markets tumbled. Central banks have also increased their gold reserves over the last year, supporting prices.
However, the gold market is currently under pressure, testing initial support at $2,300 an ounce as the U.S. labor market remains red hot. U.S. nonfarm payrolls rose by 303,000 last month, according to the Bureau of Labor Statistics, handily beating market consensus estimates of 212,000. At the same time, the unemployment rate dropped to 3.8%, defying economists' expectations of an unchanged reading at 3.9%.
The latest employment data has caused some selling pressure in the gold market, with June gold futures last trading at $2,302.80 an ounce, down 0.23% on the day. While the U.S. economy continues to create new jobs at a breakneck pace, wages are rising in line with expectations. Average hourly wages increased by 12 cents or 0.3% last month to $34.69, with February's wages revised higher to 0.2% from the initial estimate of 0.1%.
Some economists note that subdued wage inflation could keep the Fed on track to lower interest rates later this year, even if the labor market continues to grow. However, the latest data is causing a small shift in expectations for a June rate cut, with markets now seeing a 58% chance of a rate cut in June, down from 66% on Thursday.
Paul Ashworth, Chief North American Economist at Capital Economics, said that even perma-bears will struggle to find something to dislike about this employment report. "The blockbuster 303,000 increase in non-farm payrolls in March supports the Fed's position that the resilience of the economy means it can take its time with rate cuts, which might now not begin until the second half of this year," he said in a note.
Despite the short-term pressure on gold prices, the long-term outlook for the precious metal remains bullish, driven by geopolitical and structural factors. As investors navigate the complex interplay between economic data, central bank policies, and global tensions, gold is likely to continue attracting attention as a potential safe haven and hedge against inflation.
