Gold prices are showing signs of accumulating around the 5,000 USD/ounce mark, but that does not mean that this precious metal will be stuck in that price range for a long time, as an international bank has just strongly raised its gold price target for the second quarter.
In the latest gold market report, ANZ commodity analysts said they expect gold prices to reach 5,800 USD/ounce in the second quarter, significantly higher than the previous forecast of 5,400 USD/ounce.
Although recent fluctuations have raised some questions about whether gold prices have peaked, we believe that the current increase is still not'mature' enough to reverse in the short term," the analysis group said.
The sharp drop in gold from the record peak of nearly 5,600 USD/ounce last month has caused a part of investors to worry that prices could plummet deeply, similar to previous cycles such as the peak in 1980 or the peak period in 2011.
However, ANZ believes that the current market context is significantly different, as gold is still well supported thanks to expectations that the US Federal Reserve (Fed) will cut interest rates at least twice this year. Cooling inflationary pressure also makes the market begin to assess the possibility of a third interest rate cut in December.
“We forecast two waves of interest rate cuts, each of 25 basis points, taking place in March and June. This will pull real interest rates down, thereby supporting cash flow into gold. Economic and geopolitical instability is likely to continue, in which Mr. Trump continues to use tariffs as a tool to put pressure. Market attention is gradually shifting to the potential impact of tariffs, a factor that is not fully reflected in economic data and inflation. Besides, doubts about the Fed's credibility in the future still exist. All of these will increase investor demand for real assets like gold,” ANZ stated.
Not only looking at US monetary policy, this Australian bank believes that gold is still the'ultimate insurance policy' in the face of the increasing incertitude of the global financial market.
ANZ experts believe that gold continues to be an attractive defensive asset in the context of US Treasury bonds gradually losing their appeal. At the same time, this is not just a US problem, as rising public debt globally is making government bonds in general – including Japanese government bonds – less attractive.
The global financial system is undergoing a structural shift. US Treasury bonds, once considered the world's largest non-risk asset and the foundation for leverage and trading instruments, are facing a problem of confidence. Soaring public debt, concerns about the Fed's independence and growing sanctions risk have fundamentally changed the position of this instrument. Therefore, investors are demanding higher risk compensation for long-term US Treasury bonds, as shown by the increasingly widening yield gap between long-term and short-term," the report wrote.
Gold plays the role of a transitional asset, bringing stability and diversification when traditional pillars are under pressure. This is why strategic allocation to gold is still appropriate, at least until geopolitical stability is restored, structural US fiscal issues are resolved and the Fed's credibility is strengthened. These things are unlikely to happen in the near future. In that context, the role of gold as a place to store value and risk hedging tools is significant.
Considering each segment of the gold market, ANZ said that although central banks' gold buying demand is forecast to remain high until 2026, broader investment demand will be the main driving force this year.
The analysis group noted that even in high price zones, the room for cash flow to return to gold ETF funds is still large.
“We expect capital inflows into gold-guaranteed ETFs to continue to increase, with total holdings possibly exceeding 4,800 tons this year. While Western markets are still the pillar of ETF demand, significant growth is forecast to come from emerging markets such as China and India. These regions may expand their share in total global ETF holdings beyond the current 10%,” ANZ said.
The risk of price increase for our scenario is the ability of capital flows to shift from stocks and bonds to gold if geopolitical or political risks worsen" - experts added - "Assets managed by gold ETFs currently account for less than 3% of total stock and bond assets. This means that even small portfolio adjustments can create disproportionate positive impacts on gold prices.
ANZ also maintains an optimistic view on silver, but believes that due to high volatility, this metal is unlikely to outperform gold this year.
The developments of silver will remain closely linked to gold prices; strong investment demand still leaves room for price increases," the report said. "However, silver's superiority seems to be coming to an end, as industrial demand begins to react to higher prices and investors become cautious. The fluctuation range of silver is likely to be wider.
