Has the Fed reached its final stop?
Although the US Federal Reserve decided at its last meeting to raise the interest rate by 25 basis points, the tenth hike since last March, which should in theory have translated into a drop in the price of gold , but the changes carried by the approved language in the federal statement, in terms of saying that it “will monitor future data” to determine whether further rate hikes are appropriate, rather than saying that it “expects that more rate hikes are needed was seen as a clear signal that it will likely head towards a halt in interest rate hikes, which has supported investors’ bias toward gold.
Many economists expect the Federal Reserve to temporarily halt its streak of hikes if inflation and economic growth rates subside and stabilize, but fears of a US default on its debts are causing much anxiety and panic.
As Goldman Sachs Bank economic analyst David Merkel expects to temporarily halt interest rate hikes at the Federal Reserve meeting next June as pressure from collapsing banks is likely to lead to a credit crunch, indicating that federal policymakers will need to confirm that interest rates should remain contained with the likelihood that no further increases will occur, and the goal will be to maintain the ability to fight inflation while recognizing other pressures.
On the contrary, Andrew Hollenhorst, an economist at Citigroup Bank, said that it does not appear that Federal Reserve officials are convinced that the cycle of interest rate hikes is over, and the next meeting could take place after. 6 weeks, to recognize the potential need for additional rate hikes, particularly if consumer price data for April – due May 10 – is uncomfortable in terms of adjusting for inflation rates. Hollenhorst expects further rate hikes in June and July.
cover with gold
In turn, fears of an expansion of the series of meltdowns witnessed by the US banking sector since last March played a role in improving gold’s degree of protection, with the possibility that PacWest could be the fourth victim, in the list of American collapses. banks.
Back West Bank, whose share has fallen by more than 90% since March 8, 2023, confirmed that it was in talks with potential partners and investors, linked to the study of new strategic options, while Western Alliance Bank denied reports that it was considering options, including selling some or all of its business.
This denial comes from Western Alliance Bank, after a report published by the Financial Times on the possibility of selling its company caused its share to fall by around 62%, before trading was suspended several times over the course of the year. from yesterday’s session.
$226, the gain of an ounce of gold since the beginning of 2023
The yellow metal is among the best performing assets this year, and it has seen increases of more than 9%, since the start of 2023 so far, as spot gold contracts have risen in trading from yesterday, Thursday, at $2072.19 an ounce, to be near its all-time high of $2072.49, while gold futures for June delivery rose by $18.7 , to hit $2055.7 an ounce at settlement.
Expectations are to hit $2,500
This rise in gold prices comes as it is expected to reach all-time highs, which could reach $2,200 or even $2,500 an ounce, as Bank of America said. in a report published a few days ago that with the maintenance of central banks around the world in the purchase of gold and the acceleration of the dedollarization trend. And the US Federal Reserve has stopped raising interest rates. Gold only needs a few buys from new investors to clear the $2,500 mark this year, so the most realistic expectations remain for the yellow metal to hit $2,200 by the end of 2023.
Breaking the $2200 per ounce barrier
For its part, UBS Bank noted that the rise in gold prices is not yet over and that the yellow metal’s breach of the $2,200 mark is closer than ever, indicating that the Gold looks forward to rising to $2,100 by the end of the year. then jump to $2,200 by the end of the year, March 2024.
According to UBS, the main feature of the rise in gold prices in 2023 has been strong demand from central banks and the return of financial investors to the market, expecting gold buying activity by central banks will continue for another year.
Traditionally, central bank demand for gold has been seen as a second-order price driver, but record levels of bank purchases of the yellow metal, which began in 2022 and continue to date, are leaving an impact significant on prices that cannot be denied.
1136 tons in 2022
Central bank gold purchases reached 1,136 metric tons in 2022, the highest level of demand since 1950.
Looking to the year 2023, central bank purchases have amounted to over 120 metric tons so far because if purchases continue at this rate, bank purchases will reach around 750 metric tons by the end of the year. of this year, which will be the second highest level. in history after the record set in 2022.
This slowdown in the pace of buying gold from banks is due to the continued rise in the price of gold and its continued record highs.
Will gold register $2,200 or $2,500?
Abdullah Harfush, an expert in financial and economic guidance, said in an interview with “Sky News Arabia Economy” that gold’s penetration of the $2,200 barrier is not far away, while we might see higher figures between $2,500 and $3,000 an ounce, between 2024 and 2025. He indicated that technically gold could rebound to a level between $1870 and $1940 in the medium to short term, before returning complete its long-term bullish trajectory.
decline scenario
According to Harfoush, gold could fall in case the Federal Reserve decides to intervene, strengthen and restore confidence in the US dollar after the setbacks it is exposed to, stressing that this case could happen in the short term, this which will lead to investors turning to the dollar, in return and in the event of a worsening of the economic crisis. In the world, and the United States has decided to weaken the dollar on purpose because of its debt ceiling, this will have a positive impact on gold.
Factors That Will Support Gold
Abdullah Harfush, an expert in financial and economic guidance, believes that the combination of factors such as the abandonment of the dollar by some countries in the new path to create a multipolar world system, in addition to economic crises and wars, will help gold to move forward on its way to the $3,000 an ounce level within a year and a half or two years. , considering that the continuation of the banking crisis in America and the possibility of its expansion to other countries will reinforce the trend towards the metal gold as a haven of peace.
Pivotal role in portfolios and investment funds
For his part, Waddah Al-Taha, a member of the National Advisory Board of the British CISI Institute in the United Arab Emirates, said in an interview with “Economy Sky News Arabia”, that from a strategic point of view, gold will play a central role in portfolios and investment funds in the next stage, indicating that the year 2022 is an introduction. Due to the strong demand for gold, with purchases registering a volume of 4,741 tons last year, split between investment use and use for ornaments and funds, which depend on gold trade. gold, in addition to purchases by central banks around the world, the scale of which was remarkable.
Confusion in US banks
Al-Taha believes that the confusion occurring in US banks is causing concern and leading to resorting to buying gold for hedging purposes, and this is what will support gold prices in the next stage. , expecting the series of meltdowns to further overthrow the United States. banks, due to the confused state of depositors, who tend to withdraw. Their money is overbanked, leading to the downfall of the bank.
Who benefits?
According to Taha, any bank in the world loses the confidence of depositors, falls and collapses, and that is what is happening today, since gold and the big banks are the beneficiaries of this is happening with a number of US banks.
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