Gold outlook should improve once there are signs of the US economy plunging into recession. Those sentiments echoed by JPMorgan strategists who believe the precious metal will push past the $2000 ounce level by year-end. The estimate comes when the yellow metal has found support above the $1900 an ounce level after gaining more than 15% over the past 12 months.
Gold Price Drivers
However, gold price move to the upside has been limited due to dollar strength. The dollar has remained resilient for the better part of the year as the FED reiterated its monetary policy tightening spree through interest rate hikes. Nevertheless, with prospects of the US economy tipping into recession, the gold outlook should improve.
There have been growing concerns that the current high-interest rate environment poses significant economic risks. Signs of slowing economic activity with gross domestic product failing to hit targets have fueled the concerns. With high-interest rates, access to cheap capital needed to fuel economic activity has been strained significantly.
Likewise, the prospect of the US economy plunging into recession could fuel demand for gold, often seen as a store of value. People and central banks often turn to precious metals during economic uncertainty. The strong demand often triggers a significant spike in prices.
Recession is not the only factor likely to fuel a significant uptick in gold prices. A push by the US Federal Reserve to try and cut interest rates to support the economy would favor gold sentiments in the market. By cutting interest rates, demand for real yields would decline significantly, shifting the focus to non-yielding assets such as gold.
In addition, interest rate cuts are likely to fuel dollar weakness, something that should favor higher gold prices. Strong demand from central banks is another factor likely to support gold sentiments, pushing prices higher.
Gold above $2100
Considering all the factors, JPMorgan strategists believe gold prices could rally to record highs of $2175 an ounce as early as the first quarter of next year. The move higher would be accelerated by the US economy experiencing a mild recession later in the year.
Consequently, Grew Shearer, the executive director of global commodity research at JPMorgan, believes gold ownership and long allocation are good as they act as a cycle diversifier. Likewise, he expects the precious metal to outperform over the next 12 to 18 months.
Similarly, long positions on gold futures have increased significantly in 2023, which explains why the precious metal has traded above the $1900 an ounce level for the better part of the year. Strong buying spree of physical gold by central banks and other traders has also acted as a key driver of higher prices. The buying spree has been fueled by the need to diversify investment portfolios away from currencies and equities.
China rarely discloses how much its central bank buys. In 2015 it shocked the market when it reported a 600-ton jump in its bullion reserves. While the country has not reported any change in its gold hoard since 2019, there is already speculation that it has been buying under the radar. Such buys under the radar are one factor that should push prices higher.