Gold Price Outlook

“Gold prices have been in a downward trend since reaching a fresh record intraday high of $2,085.40 on 4 May 2023. At the time of writing this report, the price of gold was down around $152 from its peak. Prices were at $1,933.40. The decline in prices since early May was the result of a combination of factors such as the reduction and eventually removal of a U.S. debt default risk, a change in expectations of a monetary policy pivot, and the timing of a recession.

Despite the fairly strong decline in gold prices over the course of May and June, gold prices still are at historically elevated levels. Over the next few months, more downside in gold prices should be expected as the gold market enters a seasonally weak period and markets continue to price in the change in monetary policy expectations and the risk of a recession. If prices break below $1,875, they could decline toward $1,820. A test of $1,800 cannot be ruled out over the next few months.

Stronger than expected economic data despite tighter monetary policy conditions have resulted in the market reevaluating their expectations of the timing of a recession and a loosening of monetary policy. The timing of both, a recession as well as monetary policy loosening have been moved further out and the markets have pivoted their expectation from one of monetary policy loosening during the second half of 2023 to one of further monetary policy tightening. The market is presently factoring in a 25 basis points (bps) increase in interest rates during the second half of the year. This contrasts with market expectations of a cut in interest rates during the second half of the year only a couple of months ago.

While gold prices are forecast to soften over the next few months, beyond this period gold prices have upside. CPM Group expects gold prices to rise during the fourth quarter of this year and into 2024. Gold prices could retest earlier record highs and could possibly rise beyond this over the next several years.

Further tightening in monetary policy over the next few months could raise market expectations of an economic recession during 2024, which will bode well for gold prices. In addition to monetary policy there are other risks, especially political risks both domestic and international that are expected to be supportive of gold prices.

Even the U.S. government debt default risk which is off the table for now and was one of the reasons for weaker gold prices in recent weeks will be back in focus during late 2024, when the debt ceiling is up for debate once again. Also while the risk of default was removed for the short term, the repeated risk/threat of default every time the debt ceiling is up for discussion tarnishes the reputation of U.S. government debt as a safe haven asset, which bodes well for alternative safe haven assets like gold.”