As the Federal Reserve goes back and forth on its strategy for hiking interest rates, the gold market is inherently seeing some higher-than-usual pushing and pulling. While price volatility may not seem like a cause for celebration, some analysts consider it the perfect opportunity to buy into the market before the next price spike. According to price forecasts, we may see enormous progress from gold in the coming months offering long-term performance gains, so now could be the temporary lull investors desire.
Nitesh Shah, Wisdom Tree’s head of commodity research, explained in a recent interview with Kitco News that any gold price point below $2,000 per ounce marks an attractive buy-in for investors, given where he expects prices to rise in the near future. By the first quarter of 2024, he forecasts gold reaching $2,285 per ounce. If this prediction comes to fruition, gold would break its all-time record high next year by a landslide.
Gold closed Friday, June 9, at $1,977.20 per ounce. The precious metal hit its yearly high just a few weeks back on May 4 at $2,055 per ounce, though it has since wavered temporarily due to uncertain Fed actions and other political policies.
“Gold prices are elevated compared to last year, but it still looks cheap compared to where we see it going,” Shah explained. “There is still plenty of value at current prices.”
In April, gold experienced a similar dip as the current one, with pricing lingering below the $2,000-per-ounce line as the economy supported the relatively healthy response to the Fed’s aggressive interest rate hikes. By early May, when committee members mentioned rate hike pauses, the precious metal shot right back up to well above $2,000 per ounce, proving its agility when responding to interest rates.
In the last few weeks, gold has pushed above the $1,950-per-ounce line as market expectations shift yet again. Analysts believe the Federal Reserve is nearing the conclusion of its interest-rate-hiking cycle, with most expecting a pause in June and only half expecting a rate hike in July.
Nitesh Shah believes that the potential for future interest rate hikes shouldn’t cause concern for the gold industry. He thinks that each interest hike the Fed pushes only brings us closer to a global recession, which may seem like bad news, though could result in excellent performance growth for precious metals. Shah understands that the economy has shown some resilience, though resilience does not erase fears.
According to Nitesh Shah, central banks have a poor history of pulling off a “soft landing” for economic conditions following similar scenarios we’re in now, so he does not believe the current tightening cycle will end any differently.
“I’d love to be able to believe in a soft-landing scenario, but there’s something inside me that makes me doubt that that’s achievable,” he explained. “They’re just too focused on the inflation part of the equation.”
Shah continued on to discuss how various politicians and central bank members are placing too much weight on labor market figures that don’t actually look positive. He believes the labor market isn’t tight because of economic growth, rather, demographic issues only worsened by the COVID-19 pandemic.
“To be able to bring inflation down to target levels, central banks may just have to cause a good-sector recession to counter the impact of the structural change in the labor market pushing up service prices,” Shah explained. “It’s going to be painful for a whole host of people. From that standpoint, having a portfolio hedge in terms of gold may just be a prudent way of navigating what has become a slightly more complex economy.”
While a recession may not be a good thing, it would drive investor demand, according to Shah. Investors would flock toward the gold market seeking safe-haven assets to protect their finances amid the failing economy. As equity markets fail, gold would rise.
A recession has been looming in the background of everyone’s minds for so long now that most no longer believe it will actually happen. According to Shah, it will take a recession to really make people believe it at this point. The fear of a recession is no longer enough.
Because of this, Shah urges that investors shouldn’t wait for a recession because by then, prices will already be high. “Now is the time to prepare your portfolio,” he explained. “The time to move in is not at the time of the risk event but is before the risk is realized.”
As always, investors should use this information for educational purposes only. Please seek your financial advisor for investment support.