Gold reaches new record as analysts forecast further gains

On Wednesday morning, one ounce of gold cost as much as 2,482 USD. This is over 30 USD more than on May 20, when its price set the previous record. Considering historical correlations with prices of other assets, gold has been overvalued for some time. Despite this, it is hard to find an analyst today who believes that gold has poor prospects.

Since the beginning of the year, gold has risen by 20%, most notably from February to April. Since then, its price has been quite stable, although it temporarily climbed to a new record in May. The latest surge, lasting roughly three weeks, has broken gold out of this sideways drift. Precious metal is over 5% more expensive than it was three months ago.

- The recent surge in the price of gold above 2,400 USD per ounce is a result of lower-than-expected CPI inflation readings in the USA, - says Tomasz Niewiński, a commodity market analyst at PKO BP, to money.pl. He refers to data from last Thursday, according to which inflation in the USA in June slowed down to 3% from 3.3% in May, instead of 3.1%, as economists had generally expected. An even greater surprise was the drop in the CPI index by 0.1% month-to-month.

On Monday, Federal Reserve Chairman Jerome Powell said that the last three inflation readings increased the Fed's confidence in a sustained return to its inflation target.

Real interest rates have also fallen, such as the yield on 10-year Treasury Inflation-Protected Securities (TIPS). In July, it dropped below 2%. - A rate cut could push real interest rates even further down. And that is an opportunity cost for non-interest-bearing assets like gold, - convinces Niewiński. This is one reason most analysts view the prospects for the metal in a positive light.

How much growth potential does the price of the yellow metal have? One of the most optimistic forecasts was recently made by analysts at the American bank Citi. According to them, in the second half of 2025, gold could cost between 2,800 and 3,000 USD per ounce, up to 20% more than today. They believe this would be consistent with the behaviour of gold and other precious metals during previous cycles of monetary easing. Usually, six months after the first rate cut, precious metals were 13% more expensive.

Analysts at the French bank Société Générale have maintained their forecast since spring, according to which gold could cost 2,750-2,770 USD per ounce at the end of 2024. Experts at American Goldman Sachs hold similar expectations.

Analysts at another American bank, J.P. Morgan, are a bit more cautious. - The direction of travel in the coming quarters will still be the same - up. We predict that in the fourth quarter, the price of gold will average 2,500 USD per ounce, and in 2024, average 2,600 USD. We see a risk that these targets will be reached earlier, - wrote Gregory Shearer, chief strategist of the base and precious metals markets at J.P. Morgan, in a recent analysis.

Historically speaking, fluctuations in real interest rates were indeed one of the main forces shaping gold prices. The higher they are, the less profitable it is for investors to hold gold, which bears no interest. But in the last few years, this correlation has significantly weakened. The cycle of monetary tightening that began in 2022 in major economies led to an increase in real interest rates, which only briefly discouraged investors from gold. As early as the fourth quarter of that year, the price of the precious metal surged, and in 2023, the metal became more expensive by more than 13%.

It is this unusual behaviour of gold that has caused its price to deviate from what one would expect at today's real interest rate levels. Hence the assessments of some analysts that the metal is overvalued by a few, or even several percent. This argues for price stabilization in the short term, even if real interest rates continue to fall. Such are, for example, the expectations of Nitesh Shah, a commodities strategist at WisdomTree, cited by Reuters on Tuesday. According to him, the sideways trend will continue until the end of the third quarter, and gold prices will increase.

On the other hand, if we compare the price of gold with stock prices, the metal seems heavily undervalued. Stocks rise when investors show a high appetite for risk, that is, high optimism. In such circumstances, gold, a haven for capital during market turmoil, usually fares poorly. But again, in recent years, it has been difficult to spot this regularity. The main index of the American stock market, S&P 500, experienced two years of spectacular gains, which did not prevent a boom in the precious metals market. In recent days, stock and gold prices have also been rising.

Given these disturbances in the historical relationships between gold prices and other assets, the consensus among analysts that the metal should continue to rise may be surprising. An explanation for this state of affairs can be sought as to why these relationships have weakened.

The price of gold diverged from real interest rates soon after Western countries imposed sanctions on Russia for its attack on Ukraine. Among these sanctions was the freezing of part of Russia's foreign reserves that was held in U.S. bonds. This influenced the decisions of other central banks, particularly from emerging markets, regarding the allocation of foreign reserves.

The result was a massive increase in central bank demand for gold. In 2023, institutions monitored by the World Gold Council (WGC) bought 1,037 metric tons of the precious metal, more than ever before, excluding 2022. Then, central banks added 1,037 metric tons, the most in history.

Gold is being purchased primarily by the central banks of countries that do not have good relations with the USA and other Western nations. This is a reaction to the uncertain and tense geopolitical situation. Many other investors think similarly.

Analysts expecting further rises in the price of the precious metal often point out that this uncertainty will persist at least until the presidential elections in the USA, scheduled for November, but possibly even longer. Donald Trump, currently the favourite in the White House race, promises, among other things, widespread tariff increases on imports to the USA, which will lead to strained relations between Washington and even its allies. Additionally, it is unclear to what extent the Trump administration would be involved in defending Ukraine.