Gold Prices Hit Record High on Interest Rate Cut Expectations and Central Bank Purchases
Short-Term Correction Possible but Medium to Long-Term Uptrend Expected
Gold bar gift product from Shinsegae Department Store. 2018 archival photo / Photo by Hyunmin Kim kimhyun81@
As gold prices hit an all-time high, interest in the potential for further increases has also grown. Experts predict that while there may be short-term corrections, the upward trend is likely to continue in the medium to long term. Some forecasts even suggest that gold could surpass $2,600 per ounce in the long run.
According to industry sources on the 23rd, international gold futures prices have been on a steep rise since October last year, reaching a record high of $2,220 per ounce during trading on the 20th. Since then, prices have undergone slight adjustments and are currently fluctuating around the $2,160 level.
The International Finance Center analyzed that several factors combined to push gold prices to new highs. Primarily, speculative funds flowed in due to expectations of a rate cut by the U.S. Federal Reserve (Fed). The market anticipates that the Fed will begin its first rate cut in June and lower rates three times within the year.
Global central banks, especially in emerging markets, have also increased gold purchases as part of diversifying their asset holdings, significantly impacting the rise in gold prices. According to the World Gold Council (WGC), central banks have purchased over 1,000 tons of gold annually for the past two years, with additional buying continuing this year, led by the central banks of Turkey and China. The center explained that in China, ongoing sluggishness in the stock and real estate markets has led to increased gold investment as an alternative, sustaining strong gold demand.
An employee is organizing gold bars at the Korea Gold Exchange in Jongno-gu, Seoul. Photo by Jinhyung Kang aymsdream@
Looking ahead, the prevailing view is that while short-term corrections may occur, gold prices are likely to rise in the medium to long term.
Bond management firm Pimco assessed that with gold prices reaching record highs, central banks’ purchasing capacity may diminish and real demand could weaken. TD Securities also noted that gold futures buying positions are close to previous peaks, making it difficult for the program-driven buying that fueled recent gains to continue strongly in the near term.
On the other hand, investment bank Standard Chartered (SC) expects that ongoing geopolitical instability in Europe and the Middle East, along with global economic uncertainties, will support gold prices.
They pointed out that prolonged conflicts such as the Russia-Ukraine war and Middle East disputes, as well as rising military tensions between China and Taiwan, represent significant geopolitical risks worldwide, sustaining demand for safe-haven assets. Additionally, demand to hedge against uncertainties from major elections, including the U.S. presidential and EU parliamentary elections, is expected to continue.
Jae-young Oh, a researcher at KB Securities, said, "The recent rise in gold prices reflects rapidly growing expectations for rate cuts within the year, coinciding with gains in global asset markets," adding, "From the second to third quarter, around the time U.S. rate cuts become visible, a sustained upward trend in gold prices is likely." KB Securities forecasts that gold prices could rise to between $2,400 and $2,550 this year.
NH Investment & Securities also raised its gold price forecast to $2,600. Byung-jin Hwang, head of NH Investment & Securities, stated, "The gold price rally, which is entering a strong bull cycle during the global monetary policy easing phase, is now in full swing," and added, "We maintain our recommendation to increase gold investment weight and have raised this year’s price range and long-term target to $2,000?$2,330 and $2,600, respectively."
There are also expectations that central banks will continue purchasing gold. International Banker predicts that emerging market central banks will maintain their gold buying to prepare for a weakening U.S. dollar and to diversify their asset holdings.
Yoo-sun Hwang, senior researcher at the International Finance Center, said, "Although there is a strong possibility of a correction due to recent concerns about overvaluation of gold prices, conditions are forming for additional investment inflows such as rate cuts and continued central bank gold purchases, so gold is expected to show strength in the medium to long term."
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