Bank Muamalat (M) Bhd chief economist Mohd Afzanizam Abdul Rashid
PETALING JAYA: The stage is set for gold prices to potentially shine further this year, buoyed by uncertainties triggered by geopolitical risks, the trade war between China and the United States and the likely gradual interest rate cuts by the US Federal Reserve (Fed).
Economists and commodity traders on the whole are anticipating average gold prices to rise more than US$2,000 per ounce this year, although they said downward pressure could set in and lower the price of the commodity if global uncertainties were to abate.
The average price of gold stood at US$1,942.67 last year. As at press time, gold was hovering at US$2,338.10 per ounce.
OCBC Bank foreign exchange strategist Christopher Wong told StarBiz the bank’s constructive outlook on gold in the medium term remained intact.
He said this was driven by several factors, including the anticipation of central banks easing monetary policy globally, continued gold purchases by central banks, geopolitical concerns and gold’s role as a safe haven and portfolio diversifier.
OCBC Bank foreign exchange (FX) Strategist Christopher Wong
Wong said his year-end forecast for gold is US$2,445 per ounce, while his mid-2025 projection is for gold to hit US$2,500.
“However, it is essential to acknowledge potential risks.
“These include a prolonged delay in the Fed’s policy pivot, an unexpected rate hike by the Fed (which is not our base case), or a significant reduction in geopolitical tensions. Such factors could exert downward pressure on gold prices.
“However, the global order is seeing some shifts as the geopolitical environment is experiencing more frequent confrontations, conflicts and rivalry.
“The geoeconomic landscape is also seeing some structural changes amid shifting global supply chains, while national security concerns are shaping economic policies and re-defining rules.
“These big shifts or transitions to a new world order will see heightened uncertainties.
“To some extent, there may be greater demand for a more independent currency without polarisation and yet offer a store of value. On this note, gold may well be that safe harbour in times of uncertainty,” Wong added.
HSBC Global Research chief precious metals analyst James Steel is raising his average gold price forecasts across the board but anticipates lower prices in the later part in 2024 and 2025. For this year, he expects a wide trading range of between US$1,975 and US$2,500 per ounce.
“Gold hit record highs of US$2,365 per ounce on April 9. The rally has been fuelled by a powerful cocktail of safe-haven and hedge fund purchases, prompted by record-high equities and sticky inflation. This, in turn, is triggering heavy momentum buying,” he noted.
He said gold has reached new highs despite a reduction in rate cut expectations from earlier in the year.
Steel said gold is historically sensitive to real rates, adding that while there has been a notable disconnect in this relationship, he expects real rates to weigh on gold later in 2024.
“Exchange-traded funds continue to liquidate but over-the-counter and real money purchases have been strong. Net long positions on the Chicago Mercantile Exchange are high, but may not rise much further. Market sentiment is clearly bullish and while the near-term upward trajectory shows no signs of slacking, we think prices are progressively overstretched,” he added.
Bank Muamalat (M) Bhd chief economist Mohd Afzanizam Abdul Rashid said currently gold prices seem to be at a high point and are continuing to break records.
Consequently, he said there may be some price correction as market participants may be tempted to cash in their profits.
Therefore, he said gold prices could end the year at US$2,147.49 per ounce. It is anticipated that the Fed would cut interest rates this year, but the reductions would be gradual.
Overall, gold can be considered a safe haven, as demand typically increases during periods of economic uncertainty and when the Fed begins to cut interest rates, he said.
The ongoing humanitarian crisis in Gaza, the military conflict in Ukraine and the trade war between the United States and China could further polarise the global economy, affecting the global supply chain and leading to higher business costs.
“As a result, global inflation may remain elevated. While we are cautious about a potential near-term price correction, we believe that gold prices could continue to rise in the mid-to-long term. We have seen gold prices rise from US$1,421.40 per ounce in December 2010 to US$1,898.36 per ounce by the end of December 2020.
“Looking ahead, it is plausible to expect gold prices to reach between US$2,500 and US$3,000 per ounce over the next five to 10 years,” Afzanizam noted.
Areca Capital Sdn Bhd chief executive officer Danny Wong.
Stating his bullish stance on gold, Areca Capital chief executive Danny Wong said the commodity has moved year-to-date by more than 20%.
“However, steady economic growth and lower inflation may cap the price of gold,” he said.
Furthermore, Wong said gold is a kind of alternative investment as many see it as a global store of value. When goods prices are moving aggressively, being up or down, gold can be a good hedge against price movement, he said, adding that as such, it can be part of a diversified portfolio for risk management.
In terms of gold as an investment, Wealth Vantage Advisory director Stephen Yong said it is one of the most common alternative investments.
Wealth Vantage Advisory director Stephen Yong
“In financial planning for investment asset allocation, you would keep your exposure to alternatives around 5%-10% of your overall portfolio for diversification and risk-returns management.”
He noted that key cons of gold is that it’s actually a high risk-high volatility investment, which doesn’t generate returns.
“Investors can still consider picking up gold if they do not have any exposure or want to hold a perceived safe-haven asset.
“On the flip side, investors with outsized gold holdings may want to consider taking some profit along the way, and or adding or switching to other alternative investments, including other precious metals or even Bitcoin, which has been referred to as digital gold, “ he noted.
