Gold has experienced a robust start to the year, and economists at MUFG Bank have analyzed the outlook for the precious metal, highlighting its structural resilience and potential for further gains.
According to MUFG Bank economists, while the solidification of expectations for Federal Reserve interest rate cuts in the coming weeks and months may provide support for gold prices, it is the structural channels of physical demand that are particularly promising. They believe these channels will not only contribute to systematic momentum but also unlock additional upside potential for gold.
Looking ahead, MUFG Bank identifies several key factors that will influence the potential upside in gold prices. These include movements in US real rates and the US Dollar, as well as ongoing strong consumer demand from major gold markets such as China and India, along with continued purchases by central banks. They anticipate that these factors will offset downward pressures stemming from unexpected economic growth and repricing of rate cut expectations. Moreover, they expect any sell-offs in gold to be limited due to a dovish stance from the Federal Reserve, subdued wage growth, and sustained demand from central banks.
In terms of tactical recommendations, MUFG Bank suggests viewing a sell-off in gold as a buying opportunity. They argue that the current environment, characterized by elevated risk channels, aligns with gold’s role as a hedge against uncertainty and volatility, making it an attractive asset for investors seeking to diversify their portfolios.
Overall, MUFG Bank economists express optimism regarding the outlook for gold, citing its structural resilience and the supportive factors driving demand. They believe that while short-term fluctuations may occur, the long-term trajectory for gold remains positive, offering potential opportunities for investors in the months ahead.
