1661972353 This is the scenario where gold prices rise by 300

This is the scenario where gold prices rise by $300 this fall – RBC Capital Markets

This is the scenario where gold prices rise by 300

(Kitco News) Even as gold heads into its fifth monthly decline, a high price scenario of over $2,030 an ounce this fall cannot be ruled out, according to RBC Capital Markets.

After peaking above $2,000 an ounce in March, gold ended August down more than 5% year-to-date, with Comex futures last trading at $1,731.70 an ounce in December.

“The big rally we saw earlier in the year, particularly when Russia invaded Ukraine, was gold’s typical crisis performance,” Christopher Louney, commodities strategist at RBC Capital Markets, told Kitco News.

But since then, gold has fallen off its yearly highs. And that’s because the details of this type of crisis were negative for the precious metal, Louney explained.

“It takes economic and financial consequences to make gold stronger over the long term,” he said. “And while there have certainly been financial and economic fallout, this crisis has played out in a way that means higher interest rates and a stronger dollar, which when we think of a crisis isn’t always the case. That’s one of the reasons gold is valued the way it is.”

Macro drivers of aggressive rate hikes and a strong US dollar have kept gold below $1,800 an ounce, strategists at RBC added.

“Gold is stuck. Expectations versus surprises in response to macro data or Fed talks dictated the course of the day. That kind of revaluation of 50 versus 75 basis points and how long it lasts is what drives gold on a daily basis,” Louney said.

But heightened geopolitical tensions could support gold through year-end, making a price above $2,000 a possibility this fall.

“The tug-of-war of gold is taking place in a high-risk environment. One in which continental Europe is at war, which is still ongoing. Also, I wouldn’t write off US-China tensions over Taiwan. Add to this the broader geopolitical trade complications of what is happening in terms of an energy crisis and economic performance more broadly,” Louney pointed out would otherwise place gold.”

Because of these opposing forces, RBC is pricing in two possible scenarios through to the end of the year – the mid and the high.

The median, defined by further rate hikes and a strong dollar, sees gold at $1,679 in the third quarter and $1,663 in the fourth quarter, with a yearly average of $1,773. “That’s a fair price for gold if only driven by its macro drivers,” Louney noted.

The high scenario, which estimates more geopolitical risks and undercurrents than safe havens, puts gold at $2,036 in Q3 and $1,986 in Q4, with a yearly average of $1,944 for 2022.

“This is the outlook where geopolitical risks come to the fore and become the driving principles of gold price discovery, e.g. B. More safe havens flowing into ETFs and other gold investments. If the market is more concerned about geopolitical risk or the broader risk facing the economy, our high scenario is a fair bet,” Louney said.

Gold’s current trading pattern places the precious metal between the mid and high scenarios of the RBC.

“It’s really about what investors are putting in the driver’s seat for gold — whether we’re in a risk-on environment or a risk-off environment. This question is really important. These triggers may lead to higher gold price levels seen earlier this year,” Louney said.

On the economic front, RBC’s baseline scenario is a mild recession in the US, which will be enough to keep gold prices elevated but unlikely to lead to new record highs.

ETF flows for gold are the only metric to watch for the rest of the year, Louney added. “ETF flows have not been good this year. It’s a good indicator of how the market views risk and desire for a perceived safe haven,” he said.


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