Gold prices have been rising in recent months. While it’s still too early to tell if the trend will continue, a new report from Credit Suisse suggests that the price of gold could be headed to its highest level since 2014. Read on to find out more about the gold market.
Trend direction
Gold prices have been on a decline for the past couple of months. However, there are many factors that could drive the price higher in the future. One of the most important is inflation.
Central banks are net buyers of gold. This means they will continue to accumulate it as a strategy to diversify their foreign exchange holdings. It is also an effective hedge against market instability.
Central banks have increased their gold purchases by a substantial amount over the past decade. These purchases have contributed to the gold price.
According to the London Bullion Market Association (LBMA), the price of gold is likely to rise. In their annual survey, the LBMA estimates that the average price of gold will be $1,753 in 2013, a 5.3% increase over the average price in January 2013.
Goldman Sachs has raised its gold price forecast for the next six and 12 months. They expect the price of gold to be around US$ 1,450 within three months, and $1,625 by the end of the year.
Economic conditions beyond the near-term
The price of gold is a function of numerous variables. However, the key is figuring out which ones are the most important and which ones are the tiniest of trifles. Fortunately, this list isn’t exhaustive, but it will help you make sense of what you’re seeing on the market today.
The biggest driver of the price of gold is interest rates. Interest rates are a factor of both monetary policy and economic conditions. A low interest rate environment is a boon for investment, housing, and other productive sectors. With inflation firmly in check, there’s less risk of higher prices spurring a downward spiral in consumer and retail spending.
Fed interest rate hikes may peak in January 2023
The Federal Reserve may be gearing up for its biggest interest rate hikes since the 1980s. That means higher borrowing costs that can discourage investment and shrink the economy.
Although a tight labor market is still a problem for the Fed, the economy has taken a turn for the better. Labor force growth has been above the federal rate of 3.7 percent. Wages have also been rising.
But the Fed is concerned about inflation without triggering a recession. It wants to see more evidence of 2% or lower markups by businesses.
Inflation remains far from the Fed’s target of two percent. But the Fed has made significant progress taming it.
Tense geopolitical situations may lead to gold becoming a hedging instrument on a larger scale
Aside from the fact that the stock market is a volatile place, there are tense geopolitical situations that may cause gold to perform as a hedging tool on a wider scale next year. However, it is not always as easy as it seems to determine which assets will provide the best protection from such adverse conditions.
Gold is one of the safest investments you can make and is a valuable hedge against volatility in the equity market. While it can be volatile, the price does not have to stay in the red for very long. In fact, the price was up 17% in the first half of 2020.
Credit Suisse slashed its gold price prediction
Credit Suisse has downgraded its gold price prediction for the year and for the next few years. The Swiss bank says the outlook for inflation is not as bullish as it once was and it’s predicting a metal trading at $1,725 per troy ounce instead of the former $1,850.
It also slashed its 2022 gold price prediction by pointing out the fact that a number of factors will weigh on the metal. A stronger dollar, a rising real rate, and a slowing economy could all affect the precious metal.
Among the most important factors affecting the gold price prediction is inflation. Analysts say inflation is at its highest in 40 years. This may force the Fed to cut interest rates further in 2023.
Investing in gold
If you are looking for a way to protect your portfolio from future market downturns, investing in gold may be a good choice. Gold prices tend to move up and down depending on the overall economy. You can get a good sense of what is going on in the precious metals market by checking out exchange-traded funds.
A number of factors affect the gold price, including inflation, currency values, and demand. In addition, the amount of money that’s available to spend can also make a significant impact on the price of gold.
Central banks around the world tend to diversify their reserve holdings. In recent years, they have added more gold to their reserves.
