Commerzbank sees gold prices consolidating around $2,500 by year-end

Tue Aug 20 2024

The gold market continues to strengthen, reaching consecutive record highs above $2,500 an ounce. While gold is expected to maintain its current levels, one bank does not anticipate significant new highs for the remainder of the year. On Tuesday, Carsten Fritsch, a precious metals analyst at Commerzbank, raised his year-end gold price target to $2,500, an increase of $200 from the previous forecast. These comments come as spot gold currently trades at $2,504.10 an ounce, down from Tuesday’s session highs and remaining roughly flat on the day.

“The main driving force behind the price increase of more than 20% since the end of February has been the expectation of interest rate cuts by the US Federal Reserve,” he said in a note. “As can be seen from the interest rate cuts of around 100 basis points already priced in by the market until the end of the year, not much additional impetus is to be expected here.”

Not only have Federal Reserve interest rate cuts been priced into the gold market, but Fritsch also mentioned that higher prices could dampen physical demand. He further highlighted growing concerns that central banks may start to slow their gold purchases throughout the rest of the year.

Although the German bank expects gold prices to consolidate over the next few months, Fritsch stated that the rally is far from over.

“We expect the gold price to continue rising in the first half of 2025 due to further Fed interest rate cuts, a US inflation rate that remains above target, and a weaker US dollar,” he said.

For Commerzbank, gold remains the limited bright spot in the commodity market as commodity analysts downgrade their outlook on oil and base metals.

Even in a higher gold environment, the Commerzbank is relatively neutral on silver, platinum, and palladium.

“We continue to expect silver to end the year at $30 per troy ounce, platinum at $1,100 per troy ounce, and palladium at $1,050 per troy ounce. We are thus acknowledging that the recent rise in the gold price to a record level has failed to have an effect on the three precious metals,” Fritsch said.

Fritsch noted that silver and PGM (Platinum Group Metals) are being held back due to their strong industrial components, which are also reflected in weaker base metal prices as fears regarding the health of the global economy start to rise.

While base metals and industrial precious metals may struggle in the coming months, Commerzbank expects to see a recovery in 2025 as economic conditions improve. The bank doesn’t see the U.S. economy slipping into a recession this year.

“There are signs of significant interest rate cuts by the most important central banks,” Fritsch said. “This should favor an economic recovery next year. Furthermore, we do not expect the US economy to slide into recession this year. Concerns about this had put commodity prices under significant pressure at the beginning of August. We, therefore, assume that commodity prices will rise again in the coming quarters from their current low level. However, the difficult economic situation in China suggests that the losses will not be recovered quickly.”

Source: https://www.kitco.com/