Gold price rebounds from Fed effect, but outlook bearish for rest of 2021

The precious metal to hold around $1,700 in coming months

  
The Sicpa Oasis validator system (bullion protect) is pictured on one kilogram bar of gold at Swiss refiner Metalor in Marin near Neuchatel, Switzerland July 5, 2019. Image used for illustrative purpose.

The Sicpa Oasis validator system (bullion protect) is pictured on one kilogram bar of gold at Swiss refiner Metalor in Marin near Neuchatel, Switzerland July 5, 2019. Image used for illustrative purpose.

REUTERS/Denis Balibouse

Gold price, which came under pressure following the US Federal Reserve hawkish stance on interest rates and higher inflation projections last week, rebounded slightly on Wednesday. However, according to analysts, the outlook for the yellow metal’s price will remain bearish for the rest of the year.

With the Fed signaling that it could raise interest rate in 2023, the US long-term interest rates jumped, triggering a collapse in gold price, as the opportunity cost in holding it as investment rose. 

After the precious metal fell 6 percent last week, the spot price has rebounded slightly to over $1,780 per ounce Wednesday.

However, the outlook for gold for the rest of the year is distinctly bearish, to around $1,700/ ounce.

Emirates NBD in a report said that the benefits of holding gold as an inflation hedge are weak.

“Our projection for gold prices in 2021 had been for them to weaken in line with a general rise in UST yields and a recovering economy.”

The bank maintained its expectations for gold to record an average of $1,700/ ounce in Q3 and $1,650/tory ounce in Q4 with an annual average target of $1,717/ounce.

Bank of America Global Research said that given a more hawkish Fed, the risk of rising real rates would keep gold prices capped into the year-end.

Pictet Wealth Management are also cautious on gold in the coming months. “Having already declined to our three-month target of $1,780/ troy ounce, we expect the gold price to move further down towards our six-month target of $1,700,” it said in a note.

Pictet noted that if Fed’s 2013 QE tapering is taken as a reference, there could be further upward pressure on real rates, weighing on the gold price through lower investment demand.

(Reporting by Brinda Darasha; editing by Seban Scaria)

brinda.darasha@refinitiv.com

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