Gold’s five-week winning streak came to a halt on Friday, but analysts suggest that the precious metal’s bullish trajectory is far from over. Despite recent losses attributed to easing tensions in the Middle East, gold prices remain resilient, buoyed by a variety of factors including robust central bank demand and shifting sentiments in exchange traded funds (ETFs).
The price of gold saw a modest 0.3% increase to $2,348.75, despite earlier declines fueled by a de-escalation in tensions between Iran and Israel. Looking ahead, analysts at Morgan Stanley anticipate a choppy path for gold prices, but express confidence in its bullish potential. The firm’s bullish scenario projects gold reaching $2,760 per ounce in the latter half of the year, outweighing their bearish forecast of a drop to $2,000 per ounce.
One of the key drivers behind gold’s resilience is its ability to withstand the pressures of rising real interest rates, which traditionally dampen investor interest in non-interest bearing assets like gold. Despite historical negative correlations with real yields, gold has exhibited a positive correlation recently, driven by fundamental factors overshadowing interest rate movements.
Central bank purchases, particularly by the People’s Bank of China, alongside heightened demand for safe-haven assets amidst geopolitical tensions, have contributed to gold’s upward momentum. China, in particular, witnessed a notable 5.94% increase in gold consumption in the first quarter of the year, fueled by soaring demand for safe-haven assets.
The continued bullion purchases by the People’s Bank of China, extending for the 17th consecutive month, underscore the enduring strength of central bank demand. While ETF demand has been tepid during gold’s rally, recent indications suggest a shift in sentiment, with inflows observed in U.S. and Asia ETFs since mid-March, albeit offset by outflows in Europe.
Despite concerns regarding the macroeconomic outlook, including persistently high U.S. inflation and the potential for prolonged rate hikes, analysts remain optimistic about gold’s prospects. Strong economic data, coupled with geopolitical uncertainties, may provide further support for gold prices. Additionally, the possibility of an earlier-than-expected rate cut could serve as a positive catalyst for gold’s continued ascent.
