As the United States reduces the pace of rate hikes and eventually stops increasing them, economists predict that gold prices will soar towards record highs above $2,000 an ounce this year, albeit with some turbulence.
As inflationary pressures have subsided and markets anticipate a less aggressive monetary policy from the U.S. Federal Reserve, spot prices for the precious metal have soared beyond $1,900 an ounce, rising by almost 18% since early November.
Fast-rising interest rates hammered gold prices last year, kicking them as low as $1,613.60 in September from a high of $2,069.89 in March – just shy of a record peak in 2020.
Higher rates lifted returns on bonds, making non-yielding gold less desirable for financial investors, and pushed the dollar to its strongest in 20 years, making dollar-priced gold costlier for many buyers.
The weakening U.S. currency and bond yields “will become macro tailwinds for the yellow metal, pushing gold above $2,000/oz in the coming months,” said analysts at Bank of America.
With less pressure from the dollar and bonds, investors are likely to buy bullion as a hedge against inflation and economic turbulence, said WisdomTree analyst Nitesh Shah, adding that prices could easily move above $2,100 an ounce by year-end.
Gold is traditionally seen as a safe place to store wealth. “The risk of central banks overdoing it and pushing their economies into recession is high,” said Shah.