Gold Prices to Rise 10% This Year... Fed Pivot Effect

By the End of This Year, Ounce Price Expected to Rise to $2,250

As expectations for an early interest rate cut by the U.S. Federal Reserve (Fed) have diminished, an analysis suggests that gold prices, which have recently weakened, could rise by more than 10% by the end of this year.

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According to CNBC on the 22nd (local time), UBS stated in a recent report that despite the weakness in gold prices this year, the market should not underestimate the expectation of a monetary policy pivot by the Fed. UBS noted that gold prices are above the psychological support level of $2,000 per ounce and forecasted that prices could rise to $2,250 per ounce by the end of the year, representing an increase of more than 10% from current levels.

Scotiabank offered a more conservative outlook. In a report released on the same day, Scotiabank raised its year-end gold price forecast from $1,900 per ounce to $2,000 per ounce.

Gold, a representative safe-haven asset, has attracted investor attention as a refuge during times of geopolitical instability and market uncertainty. It is also an attractive investment asset that can yield higher returns during periods of falling interest rates. With major central banks, including the Fed, expected to begin monetary policy shifts this year and geopolitical risks from the Middle East intensifying, the outlook for rising gold prices has gained momentum.

However, gold prices have recently weakened as expectations for an early Fed rate cut have retreated. Last week, hawkish comments from Fed officials emphasizing the need to review more inflation data before deciding on rate cuts caused gold prices to fall about 1% over the week.

According to the Chicago Mercantile Exchange (CME) FedWatch, the interest rate futures market currently reflects about a 41% chance that the Fed will cut rates by at least 0.25 percentage points at the Federal Open Market Committee (FOMC) meeting in March, following a rate hold in January. This is a significant drop from the 80% range seen a week ago. The timing of the Fed’s first rate cut has been pushed back to May. This shift is largely due to expectations that the Fed will be cautious about cutting rates amid stronger-than-expected economic data.

According to the World Gold Council, gold prices hit multiple all-time highs last year, with the highest closing price at $2,078 per ounce. As of today, gold is trading slightly lower than the previous close, around the $2,020 per ounce level.