Gold prices extended losses for a second day on Tuesday, hitting a more than two-week low as fears of escalating tensions in the Middle East subsided, prompting investors to book profits ahead of key U.S. economic data this week. Spot gold fell 0.3% to $2,318.90 per ounce, while U.S. gold futures slipped 0.6% to $2,331.80.
Despite the recent dip, experts remain bullish on the long-term outlook for gold prices. Famed economist David Rosenberg believes that gold prices have another 29% upside potential, with a target of $3,000 per ounce. In a note on Monday, Rosenberg outlined several factors that could help boost gold prices, including China's central bank's ongoing gold buying spree.
"China's drift from the US is behind its slow but steady rotation from US dollar reserves to gold - and also means the end of the yuan as a potential second reserve currency (pushing other central banks back toward gold)," Rosenberg said.
Over the past year, China has purchased about 181 tonnes of gold, making it the sixth-largest holder of gold reserves. However, its share of gold reserves, at 4.3% in March, is still far below the global average of 13%. "The US holds 70% of its reserves in gold. So there is incredible room to run for the PBOC over the next few years just to approach the global benchmark of gold reserves," Rosenberg added.
In addition to China's central bank purchases, increased demand from investors via gold ETFs and the start of the Federal Reserve's easing cycle could also contribute to the rise in gold prices. "That's the event that would bring $3,000 per ounce into view," Rosenberg said, referring to the Fed's potential interest rate cuts.
While the market closely monitors U.S. GDP data due on Thursday and the Personal Consumption Expenditures (PCE) print on Friday for more clues on the health of the economy and the timing of cuts, some experts believe that the recent dip in gold prices presents a buying opportunity for investors who missed out on the big rally.
"There are many investors who have missed out on the big rally in gold and will be looking to pick up dips like these," said Fawad Razaqzada, market analyst at City Index.
Julia Khandoshko, CEO at European broker Mind Money, noted that the market is also closely monitoring signals from the U.S., where inflation data and statements from the Federal Reserve indicate that interest rates may not be cut in June, reducing the appeal of non-interest paying bullion. Traders now expect the first Fed rate cut to come most likely in September.
