Increased inflationary pressure is causing investors to wait longer before gold prices can escape the current accumulation phase, according to Mr. Carsten Fritsch - Commodity Analyst at Germany's leading commercial bank (Commerzbank).
According to Mr. Fritsch, the diễn biến of precious metals in recent times is going against what the market usually expects. Gold is considered an inflation hedging tool, but has decreased in price amid strong energy prices and escalating global inflationary pressure. At the same time, precious metals have not attracted safe-haven cash flow as usual despite prolonged geopolitical instability. The main reason comes from the strong change in expectations for monetary policy of the US Federal Reserve (Fed).
Before energy prices soared, the market once expected the Fed to cut about 50 basis points this year. However, that outlook has changed significantly. The Fed interest rate futures currently show that the US operating interest rate may be around 3.8% by the end of the year. While the effective interest rate is currently just over 3.6%, which means investors are forecasting the Fed will raise interest rates in the near future. A 25 basis point increase has now been fully appreciated in the spring of 2027," he said.
According to CME's FedWatch tool, the market currently assesses the possibility of the Fed raising interest rates in December at over 50%. The risk of interest rate hikes is increasing the opportunity cost of holding gold - an asset that does not yield yields. This is also the main reason why Commerzbank lowered its year-end gold price forecast from 5,000 USD to 4,800 USD/ounce.
However, the German bank believes that gold still has room to increase in price in the coming months. "Our basic scenario is that the market will go through about two transition months before Brent oil prices cool down. Then, current interest rate hike expectations may be reversed," Mr. Fritsch said.
The above assessment was made in the context that gold prices are still facing difficulties in reconquering the 4,500 USD/ounce mark. At the time of report announcement, spot gold traded at 4,483.95 USD/ounce, up 1.11% during the day. Thus, the target of 4,800 USD/ounce still means an increase of about 8% compared to the current price level.
Although the market is betting on the possibility that the Fed will continue to tighten monetary policy, Commerzbank does not believe that will happen this year. According to assessments by economic experts at this bank, interest rates are likely to remain unchanged and the next move of the Fed is still to cut. However, the time for policy easing may not come before the second quarter of 2027.
Therefore, we continue to maintain the forecast that gold prices will reach 5,200 USD/ounce by the end of 2027," Mr. Fritsch emphasized, while saying that the foundational factors supporting the gold market are still completely intact.
According to this expert, the most important driving force is the decline in confidence in the role of the USD as a reserve currency. This trend is expected to continue to drive central banks to increase the proportion of gold in foreign exchange reserves. In addition, investment demand for precious metals is still supported by the increasing public debt burden and the rapid increase in government loans globally.
These factors are leading to monetary policy being more loose than necessary compared to actual inflationary pressure," he said.
Not only adjusting the outlook for gold, Commerzbank also lowered its silver price forecast. The German bank currently expects silver to end the year around 80 USD/ounce, lower than previous assessments. According to Mr. Fritsch, in addition to lowering the gold price forecast, the weakening outlook for industrial demand is also a reason why the bank is becoming more cautious with silver.
Citing the latest assessment from the Silver Institute, he said that industrial silver demand is forecast to decrease for the second consecutive year and to the lowest level in four years. However, the silver market is still in a state of supply-demand tightening, thereby creating a foundation to support prices in the medium and long term.
On that basis, Commerzbank forecasts that silver prices could reach about 90 USD/ounce by the end of 2027, lower than the previously set target of 95 USD/ounce but still showing significant price increase prospects in the coming years.
