The recent surge in the price of gold to a new record high following the perceived dovish stance of the Federal Reserve (Fed) has prompted economists at Scotiabank to analyze the outlook for the yellow metal.
While gold’s ascent has captured market attention, economists at Scotiabank remain cautious about its sustainability. They express skepticism regarding the lack of a clear explanation for gold’s rally and question its ability to maintain and expand upon current gains in the short term.
Despite this skepticism, Scotiabank economists acknowledge that a return to pre-surge levels seen at the end of February is improbable. This sentiment is underpinned by market expectations of forthcoming interest rate cuts by the Fed, slated to commence from June onwards. Such a monetary policy shift is anticipated to provide support for gold prices in the near term.
However, Scotiabank economists caution against overly optimistic projections for gold’s trajectory in the medium to long term. They highlight the likelihood of limited upside potential due to the improbable occurrence of a significant cycle of interest rate cuts in the US. Persistent risks of inflation serve as a deterrent against overly aggressive monetary policy measures.
In light of these considerations, Scotiabank has revised its gold price forecast for both the end of this year and the end of next year, raising it from $2,100 to $2,200. While this adjustment reflects a degree of bullish sentiment, it also underscores the tempered expectations regarding gold’s future performance.
In summary, while gold’s recent rally has sparked intrigue and speculation, Scotiabank economists maintain a cautious outlook, emphasizing the need for a balanced assessment of the factors influencing gold prices. Despite near-term support from anticipated Fed rate cuts, long-term prospects for gold may be constrained by inflationary concerns and limited potential for significant monetary policy easing.
