Gold (XAU/USD) falls below $2,000 for the first time since December 2023. Economists at the MUFG Bank analyze the prospects for the yellow metal.
Gold resistance remains intact even as high US inflation dampens Fed rate cut expectations
Gold prices have continued to consolidate as higher-than-expected US inflation has dampened hopes of a rate cut in the first half of 2024. Beyond inflation, high yields have found further support following the recent meeting of the Federal Open Market Committee (FOMC), which has removed the restrictive bias with Fed Chair Powell noting that a cut in March “probably is not the most likely case.”
Although higher longer-term rates are bearish for non-interest-bearing bullion, we are convinced that the other two channels that are fundamental to our bullish view of Gold 2024 remain intact, namely strong central bank buying of emerging markets for the diversification of reserves and their role as a geopolitical hedge of last resort.
With gold prices now flirting below the $2,000 zone, we recognize downside risks to our constructive forecasts of $2,350 by the end of the year. However, we continue to recommend a long position in Gold and consider any massive sell-off as a buying opportunity in an environment with high risk dimensions (geopolitics, recession revaluation) that play in favor of Gold's hedging qualities.
Source: Fx Street
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