(Kitco News) – Friday’s comments from Federal Reserve Chairman Jerome Powell made it clear that the central bank will continue to raise interest rates aggressively through the end of the year, which will continue to weigh on gold prices, according to a market analyst.
Georgette Boele, senior gold strategist at ABN AMRO, said she now sees gold prices ending the year around $1,700 an ounce as the Federal Reserve could push the Fed Funds rate closer to 4%.
The Dutch bank’s new price target is a sharp downgrade from its previous year-end estimate for the precious metal of around $2,000 an ounce. The downgrade comes as gold prices hover around $1,750 an ounce. Boele noted that so far this year, gold prices are down 3.6%. However, he added that prices are expected to maintain solid support above last month’s lows.
“We expect only a modest decline in gold prices from current levels. This is based on our view that we expect the US dollar to remain relatively strong, although we do not pencil in another strong rally from these already high levels,” Boele said in the report. “Second, we think US real yields are near a peak or have already peaked. As a result, it is likely that this driving force will not add substantial pressure to gold prices from current levels. Third, there is a critical support area at USD 1,680-1,700 per ounce. We expect these levels to be retested and prices could move below them, albeit only temporarily.”
The comments come as CME’s FedWatch Tool puts the odds of a 75 basis point hike at more than 70%. Last week markets saw a 50/50 chance the central bank would raise the Fed funds rate by 50 or 75 basis points.
Expectations have solidified after Powell warned markets in his speech in Jackson Hole on Friday that not only will interest rates move higher, they could stay higher for longer than expected.
Although gold prices will remain under pressure throughout the year, Boele is optimistic that prices will move higher in 2023.
“Not only do we expect the US dollar to weaken, but we also expect the Fed to start cutting interest rates in the second half of 2023. In addition, we expect lower real yields in the US. As a result, gold prices are likely to recover next year,” he said.
The Dutch analyst sees gold prices reaching $1,900 an ounce by the end of next year.
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