Prices are hovering between $1,300 and $1,350 per ounce since the start of the year.
The gold market is still caught in a trading range. Prices are hovering between $1,300 and $1,350 per ounce since the start of the year.
"This is very much the mirror image of the US dollar index, which is fluctuating around the 90 level," said Carsten Menke, Commodities Research Analyst, Julius Baer. "Amid all the geopolitical noise, this may be surprising, even more so considering that safe-haven demand has increased more recently. Yet we believe it is insufficient to tighten the market and push prices to a higher level. For example, safe-haven demand is much weaker today than in early 2016, when global growth worries spooked financial markets. Once more, we feel confirmed in our view that geopolitics hardly matter for gold unless consequences for the economy or financial markets arise. In fact, we believe the strong global economy is one reason why safehaven demand is insufficient. We still see the US rate cycle and US dollar in the driving seat for gold."
Economists expect the Federal Reserve to shift their guidance to four rate hikes this year as the economy steams ahead and inflation picks up over the coming months. Rising rates and a temporarily stronger US dollar should bring sufficient headwinds to put downward pressure on gold prices going forward, justifying an unchanged cautious view. As the dollar’s upside appears more limited than before, however, we lift our 3- and 12-month price targets to USD 1,275 and USD 1,325 per ounce respectively. These short-term rate cycle headwinds should fade as the year progresses, opening up medium- to longer-term buying opportunities. Sustainable upside should materialise once growth concerns creep into financial markets and revive the demand for gold as a safe haven.
"The gold market is still caught in a trading range. While safe-haven demand has increased, it is insufficient to push prices to a higher level. We still see the US rate cycle and US dollar in the driving seat for gold. Rising rates and a rebounding dollar should put downward pressure on prices, but the downside looks more limited," Carsten Menke, Commodities Research Analyst, Julius Baer continued.