Gold metal price forecast cut by US$500 following aggressive Federal Reserve moves to keep borrowing costs high.
Banking giant Goldman Sachs has unexpectedly cut its year-end gold price forecast by US$500 per ounce. The bank’s analysts have now set a new target of US$4,900 by December due to changes in US monetary policy.
The move reflects a significant change in tone from one of the most optimistic institutions on the commodity. Although the market still expects a price increase in the second half of the year, the momentum of the increase is now seen as more limited and slower.
New Fed Chairman’s Fierce Moves Are Being Taken
The main factor that has dulled gold’s shine is the firm stance of the Federal Reserve under the leadership of new Chairman Kevin Warsh. US policymakers have given a clear signal that there will be no interest rate cuts this year in order to combat stubborn inflation.
On the other hand, support for rising borrowing costs is growing among central bankers who want to restore market price stability. This situation reduces the appeal of gold as investors now prefer to switch to assets that produce cash returns over gold.
Investors Move Capital Out of Gold Funds
This revision in price projections is also driven by a drastic drop in capital inflows into gold-backed exchange-traded funds. Economists now predict that interest rate cuts will only begin in the middle of next year compared to earlier expectations.
If the central bank chooses to raise interest rates as early as September, gold prices could plunge to the US$4,400 level. The move would cause demand for gold as a hedge against macroeconomic policy to unravel more quickly.
Remaining Lifeline From World Central Banks
Despite being bombarded with negative sentiment, the gold market actually still has a few lifelines that can keep its price from continuing to free fall. Continuous purchases by global central banks are reported to remain strong at a rate of 50 tons per month for this year.
The price of physical gold in the current market is reported to be hovering below US$4,135, marking its third consecutive weekly decline. The precious commodity appears to be still struggling to recover after hitting a record high of nearly US$5,600 earlier this year.
