![ANZ: "We raise our [Gold] price target to $2,550/oz for year end." (photo credit: PR)](https://images.jpost.1eye.us/image/upload/q_auto/c_fill,g_faces:center,h_537,w_822/615880 "ANZ: \"We raise our [Gold] price target to $2,550/oz for year end.\"")
In a report dated August 13th from ANZ Bank, titled "Gold to Get Its Medal," The bank provides an in-depth analysis of the current and projected performance of gold as a strategic asset.
They highlight potential impacts of the U.S. Federal Reserve's upcoming interest rate cuts, central bank purchases, and global physical demand on gold prices.
With a year-end target of USD 2,550 per ounce announced, the report underscores gold's resilience and attractiveness in the face of economic and geopolitical uncertainties.
Federal Reserve’s Impact on Gold:
They begin by addressing the Federal Reserve's anticipated rate cuts, which are expected to initiate a new cycle of strategic investment in gold.
Historically, lower interest rates reduce the opportunity cost of holding non-yielding assets like gold, making it more attractive to investors. The analyst predicts that the Fed's easing, starting potentially in September 2024, will serve as a catalyst for a significant uptick in gold prices.
From the Report:
The report then presents a graphical analysis of gold prices in relation to previous U.S. rate cut cycles, showing a consistent rise of 5-6% following the first rate cut. This pattern is expected to repeat, supported by geopolitical tensions and the upcoming U.S. elections, which are likely to increase market volatility and drive haven demand for gold.We expect 50bp of rate cuts in 2024 and a total of 200bp of cuts in this easing cycle. Interest rate cuts are normally positive for gold as they reduce the opportunity cost of holding gold.
Central Bank Purchases:
Central banks have played a pivotal role in sustaining gold demand, with purchases continuing to provide a strong base despite some moderation in the second quarter of 2024.
The Bank forecasts annual central bank gold buying to reach 800 tons in 2024:
Notably, the report mentions the significant, albeit unreported, gold purchases that have dominated quarterly demand. For instance, the People's Bank of China (PBoC) has slowed its gold accumulation since prices crossed USD 2,000 per ounce, yet remains a critical player in the market.Elevated geopolitical and economic risks suggest the trend in the official sector buying will continue. We keep our estimate for official gold demand to be near 800t in 2024.
Gold Performance after Rate cuts
China Buying slows, But India buying Picks up Pace…
The Reserve Bank of India has also increased its gold reserves, further reinforcing gold's role as a hedge against economic uncertainties.
Physical Demand and Market Dynamics:
The report also delves into the physical demand for gold, particularly in key markets like China and India. While global physical demand moderated in the second quarter of 2024, the Bank expects this softness to be temporary. China's gold imports, despite a decline in Q2, are projected to remain robust, driven by a weak property sector and a downtrend in equity markets.
Seasonal Factors Loom Large now…
India's gold demand, on the other hand, is poised to benefit from strong economic growth and recent reductions in import duties. The report highlights the importance of the upcoming festive season and the positive impact of monsoon rainfall on rural incomes, which traditionally boost gold purchases. The Bank predicts that India's gold consumption could reach 500 tons in the second half of 2024.
Investment Demand:
The report also analyzes investment demand, noting a divergence between speculative and strategic investments. While speculative demand has been strong, particularly in futures markets, strategic investment via exchange-traded funds (ETFs) has lagged due to high-interest rates in developed markets. However, there has been a recent shift, with ETF flows turning positive in May 2024, signaling a renewed interest in gold as a strategic asset.
The West Has Returned to Buying Gold…
The Bank expects this trend to continue, particularly in the latter half of the year as interest rates begin to fall. The report draws parallels with previous cutting cycles, such as in 2008-09 and 2019-20, where ETF flows saw significant increases, reinforcing the case for gold as a critical component of investment portfolios.
The Price Forecast:
From a technical perspective, the report identifies key resistance and support levels for gold prices. The current price consolidation between USD 2,350 and USD 2,460 per ounce is highlighted, with the key resistance level at USD 2,480 needing to be breached for prices to move higher.
ANZ Bank’s Price Target:
The analyst suggests that while there is potential for a pullback, any such movement is likely to attract more investment demand, thus limiting the downside.Any price pullback will attract more investment demand, protecting the downside. We raise our price target to USD2,550/oz for the year end.
Technically, $2480 looms large on the way to $2550…
The year-end price target of USD 2,550 per ounce reflects a bullish outlook, supported by both fundamental and technical factors. This projection is further bolstered by the expectation of increased demand from central banks and investors alike.
Bottom Line:
ANZ Bank believes Gold will touch $2550 as the US election nears and the Fed rate cut cycle starts. Big picture drivers like Central Banks demand and Geopolitical uncertainty remain in place and will not likely dissuade this. For the prediction to gain weight, the bank wants to see a settlement over $2480 from a technical point of view to confirm this analysis.
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