GOLD - FUNDAMENTAL ANALYSIS
Gold Price Forecasts Revised Lower For Year-End 2023 And 2024 At ABN AMRO
In her extensive XAU strategic note to clients, Georgette Boele, Senior Economist at ABN AMRO warns of a downgrade to the bank's 2023 and 2024 gold price forecasts.
The analyst cites the gold price being close to all-time highs, a level that should it fall, might not be seen for another five years. With FED monetary policy easing being prices-in, the upside is likely to be limited from here.
Gold prices so far have been erratic in 2023. The price of gold started the year on a bullish note, recording a 13% surge in prices by May 4.
According to the analyst, however, momentum has since flagged, and the precious metal now seems to be in a phase of consolidation.
This change in trend aligns with Boele's observation that investors may be hesitant to buy at current levels, especially with the specter of a significant drop looming over the market; hinting at the risk-averse nature of gold investors, who tend to prioritise long-term stability over short-term gains.
Boele's shift in her Federal Reserve outlook significantly informs her predictions.
Originally, she did not expect an aggressive rate-cutting spree in the short term but believed that the easing cycle would commence towards the end of 2023. However, recent developments have led her to revise these expectations.
"Last week, we changed our Fed view and also our US dollar view" says Boele.
"We now expect a recession to start in Q4 and rate cuts to come in Q1 2024. We expect the last rate hike of 25bp at the Fed’s July meeting and no rate cuts this year. We still forecast aggressive rate cuts in 2024. We now have a total of 175 basis point of rate cuts in 2024," she adds.
This forecast indicates her belief that the Federal Reserve will take assertive measures to stimulate the economy and combat the recessionary pressures she expects to emerge.
In line with her altered expectations for the Federal Reserve, Boele's perspective on the US dollar has also evolved.
With fewer rate cuts expected for the remainder of 2023 and into 2024, she has upgraded her view on the US dollar, seeing this as a positive turn.
This shift indicates her belief in the resilience of the US Dollar and its likely performance in the face of adverse economic conditions.
"As a result of the change in our Fed view we have upgraded our view on the US dollar," says the analyst.
"We no longer have a rate cut for the Fed this year and fewer total rate cuts in 2023-2024. This is a positive for the US dollar. Our view is roughly in line with the market."
Boele's points out that rate expectations, both real and nominal, alongside the outlook for the US dollar, are crucial drivers for gold prices.
Consequently, her adjusted outlook for the Federal Reserve and the US dollar has led her to downgrade her gold price forecast for 2024.
"So we have also downgraded our gold price forecast for 2024 to 2,000 USD per ounce (from 2,200 before) We now have for 2023 and 2024 a year-end forecast of 2,000," says the economist.
Despite the Federal Reserve's potential easing typically being seen as a boon for gold prices, Boele sees limited upward potential for gold in relation to the US dollar. Investors, she notes, currently hold net-long gold positions, and there is a risk that part of these will be liquidated.
"What is the reasoning behind this?" she asks.
"The start of monetary policy easing by Fed is generally positive for gold prices. But as the market has already anticipated this, it is already reflected in the gold price. Therefore we think that upside in gold prices versus the US dollar is rather limited from current levels, " she adds.
Boele offers a word of caution for investors. Given the currently high levels of gold prices and potential risks, she suggests that being long may not be the most attractive stance from a risk-reward perspective.
In her extensive XAU strategic note to clients, Georgette Boele, Senior Economist at ABN AMRO warns of a downgrade to the bank's 2023 and 2024 gold price forecasts.
The analyst cites the gold price being close to all-time highs, a level that should it fall, might not be seen for another five years. With FED monetary policy easing being prices-in, the upside is likely to be limited from here.
Gold prices so far have been erratic in 2023. The price of gold started the year on a bullish note, recording a 13% surge in prices by May 4.
According to the analyst, however, momentum has since flagged, and the precious metal now seems to be in a phase of consolidation.
This change in trend aligns with Boele's observation that investors may be hesitant to buy at current levels, especially with the specter of a significant drop looming over the market; hinting at the risk-averse nature of gold investors, who tend to prioritise long-term stability over short-term gains.
Boele's shift in her Federal Reserve outlook significantly informs her predictions.
Originally, she did not expect an aggressive rate-cutting spree in the short term but believed that the easing cycle would commence towards the end of 2023. However, recent developments have led her to revise these expectations.
"Last week, we changed our Fed view and also our US dollar view" says Boele.
"We now expect a recession to start in Q4 and rate cuts to come in Q1 2024. We expect the last rate hike of 25bp at the Fed’s July meeting and no rate cuts this year. We still forecast aggressive rate cuts in 2024. We now have a total of 175 basis point of rate cuts in 2024," she adds.
This forecast indicates her belief that the Federal Reserve will take assertive measures to stimulate the economy and combat the recessionary pressures she expects to emerge.
In line with her altered expectations for the Federal Reserve, Boele's perspective on the US dollar has also evolved.
With fewer rate cuts expected for the remainder of 2023 and into 2024, she has upgraded her view on the US dollar, seeing this as a positive turn.
This shift indicates her belief in the resilience of the US Dollar and its likely performance in the face of adverse economic conditions.
"As a result of the change in our Fed view we have upgraded our view on the US dollar," says the analyst.
"We no longer have a rate cut for the Fed this year and fewer total rate cuts in 2023-2024. This is a positive for the US dollar. Our view is roughly in line with the market."
Boele's points out that rate expectations, both real and nominal, alongside the outlook for the US dollar, are crucial drivers for gold prices.
Consequently, her adjusted outlook for the Federal Reserve and the US dollar has led her to downgrade her gold price forecast for 2024.
"So we have also downgraded our gold price forecast for 2024 to 2,000 USD per ounce (from 2,200 before) We now have for 2023 and 2024 a year-end forecast of 2,000," says the economist.
Despite the Federal Reserve's potential easing typically being seen as a boon for gold prices, Boele sees limited upward potential for gold in relation to the US dollar. Investors, she notes, currently hold net-long gold positions, and there is a risk that part of these will be liquidated.
"What is the reasoning behind this?" she asks.
"The start of monetary policy easing by Fed is generally positive for gold prices. But as the market has already anticipated this, it is already reflected in the gold price. Therefore we think that upside in gold prices versus the US dollar is rather limited from current levels, " she adds.
Boele offers a word of caution for investors. Given the currently high levels of gold prices and potential risks, she suggests that being long may not be the most attractive stance from a risk-reward perspective.
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