Bank of America analysts predict that the gold market will surge significantly as the Federal Reserve plans to lower interest rates this year, exacerbating economic uncertainty due to mounting debt. Michael Widmer, a commodity strategist at the bank, anticipates gold prices could reach $3,000 per ounce within the next 12 to 18 months. However, he emphasizes that a clear signal from the Federal Reserve about impending rate cuts is necessary to stimulate investment demand. Widmer suggests that if non-commercial demand increases following a Fed rate cut, gold prices could rise further, particularly if there are increases in LBMA clearing volumes and physically-backed ETF inflows. He estimates that a 20% increase in investment demand could support an average gold price of $2,500 per ounce this year, though current year-over-year non-commercial purchases only support an average price of $2,200 per ounce.
Mohamed Hashad, chief market strategist at Noor Capital, notes that gold is gaining from a weaker dollar and firm US Treasury bond yields, rising by 0.45%. Investors are closely observing the upcoming PCE Price Index, the Federal Reserve's preferred inflation gauge, as it could influence rate cut expectations. The CME FedWatch Tool now shows a 66% chance of a rate cut in September, up from 59.5%, leading to a decline in the US Dollar Index (DXY). Hashad observes that investors are turning to gold as risk appetite wanes, with US Treasury bond yields remaining stable and the DXY falling by 0.26% to 105.53.
Hashad also analyzes the technical aspects of gold's price, noting that it is testing the $2,330 head-and-shoulders neckline after a bearish-engulfing pattern formed last Friday, suggesting a negative bias. He predicts that if the $2,300 support level is breached, gold could drop to $2,277 and then $2,222, with deeper losses potentially targeting the $2,170–$2,160 range. On the upside, reclaiming $2,350 could challenge higher resistance levels, including the June 7 high of $2,387.
Bank of America also highlights rising bond yield volatility as beneficial for gold, noting that central banks are reducing their dollar and Treasury exposure, making gold an attractive reserve asset. China's role in the gold market and Treasuries is significant, with the People's Bank of China increasing its gold holdings by 8 million ounces since January 2023, while reducing its US Treasury holdings by $102 billion in the past year. Widmer warns that increased macro uncertainty could threaten market stability, but a sharp rise in rates could initially lower gold prices before attracting safe-haven flows back into gold.
