INFLATION concerns have, in recent weeks, fuelled renewed interest in gold.
Often considered an inflation hedge, the yellow metal has gained about 2% in the last one month, as traders seek a haven amid stubbornly high inflation and the looming reduction in stimulus as well as the softer US dollar.
The commodity is currently hovering below the US$1,800 (RM7,459) an ounce level.
An analyst tells StarBizWeek he expects gold prices to continue its upward trajectory in the short term albeit at a gradual pace.
According to ALA Advisors chief investment officer Dar Wong, gold prices could hover around US$1,950 (RM8,081) an ounce towards the end of this year.
Expecting the US dollar to weaken going into 2022, the Singapore-based analyst sees the possibility of gold prices setting a new record of around US$2,300 (RM9,531) an ounce in the first half of next year.
“We see a strong likelihood of the greenback tanking in 2022 due to the spiral effects of the US government rolling out new financial stimulus initiatives,” he explains.
Wong says gold prices have already hit bottom at US$1,720 (RM7,128) an ounce in late September, noting strong support from bargain hunters subsequently helped push up the prices of the precious metal.
Fundamentally, the current global inflation is triggered by rising crude oil prices, Wong points out, adding that the strong rally in crude oil prices since January this year has resulted in most traders focusing on the energy and food sectors this year instead of precious metals.
However, Wong expects interest in gold to pick up, especially when crude oil prices begin to stabilise.
Meanwhile, ABC Bullion global general manager Nicholas Frappell was quoted by Reuters as saying that inflation has partly contributed to the increase in interest in gold.
“We’re seeing some more buyers being drawn into the gold market and that’s partly around the narrative of higher prices,” Frappell told the newswire.
As of time of writing, spot gold was down about 0.1% at US$1,797.10 (RM7,447.18) an ounce yesterday, but on a weekly basis, it has gained about 0.2% so far this week, while gold futures dropped 0.3% to US$1,797.60 (RM7,447.60) per ounce.
It was third straight weekly gain for gold, spurred by lower US bond yields and a weaker greenback, which enhanced the metal’s safe-haven appeal.
“Gold typically performs well when investors turn risk-averse and when returns on other assets such as bonds seem low,” one analyst, with a local bank, tells StarBizWeek.
“A softer US dollar also enhances the appeal of gold for those holding other currencies,” he adds. The analyst, however, notes although gold prices have rallied a bit in the last one month, the precious metal has continued to struggle to settle strongly above the US$1,800 (RM7,459) an ounce level.
“There are headwinds ahead due to the impending rise in US interest rates, which could lift government bond yields, and translate into a higher opportunity cost for holding gold, which does not pay no interest,” he says.
The analyst expects gold prices to see muted movements ahead of the US Federal Reserve (Fed) policy meeting on Nov 3.
The Fed is widely expected to announce the timing for tapering its US$120bil (RM497.3bil) monthly asset purchases, as inflationary pressures continue to build up.
Expectations are for the Fed to start tapering in December and complete the programme before end-2022, while the first interest rate hike will likely take place in the second half of 2022.
ANZ, in its recent note,said gold’s supportive backdrop could wane as the Fed gets closer to a tapering decision from November and rate hikes from next year.
“Negative real yield and inflation risks will help gold prices to move to US$1,850 (RM7,666) per ounce before retreating next year and beyond,” the financial institution wrote.
A Reuters poll over the week showed analysts have trimmed their gold price forecasts for the rest of this year and next, expecting the precious metal to hover around current levels in the fourth quarter before edging lower in 2022.
The poll of 37 analysts and traders this month now pegs a median forecast for gold at an average of US$1,795 (RM7,438) an ounce in the fourth quarter of 2021.
This compared with an earlier forecast of an average of US$1,841 (RM7,629) an ounce for the fourth quarter of 2021 based on a similar survey conducted in July.
Gold prices averaged at US$1,770 (RM7,335) an ounce in the third quarter of this year.
For 2022, the poll now forecast an average gold price of US$1,750 (RM7,252) an ounce, compared with the earlier forecast of US$1,785 (RM7,397) an ounce.