Georgette Boele, Senior Economist at ABN AMRO, has revised the bank’s gold price forecasts for 2023 and 2024, according to her extensive XAU strategic note to clients.
Boele points out that the gold price is currently near all-time highs, and if it were to decline, it may take years to reach this level again. With the market already factoring in the impact of FED monetary policy easing, the upside potential for gold is expected to be limited going forward.
Although gold prices experienced a strong start in 2023, with a 13% surge by May 4, Boele highlights that momentum has since slowed, indicating a consolidation phase for the precious metal.
This change in trend aligns with Boele’s observation that investors may hesitate to buy at current levels, particularly due to the looming risk of a significant drop. This reflects the risk-averse nature of gold investors, who prioritize long-term stability over short-term gains.
Boele’s revised outlook on the Federal Reserve significantly influences her predictions. Initially, she did not anticipate aggressive rate cuts in the short term, expecting the easing cycle to commence towards the end of 2023. However, recent developments have led her to revise these expectations. “We now expect a recession to start in Q4 and rate cuts to come in Q1 2024.
We expect the last rate hike of 25bp at the Fed’s July meeting and no rate cuts this year. We still forecast aggressive rate cuts in 2024. We now have a total of 175 basis point of rate cuts in 2024,” she explains. Boele’s forecast suggests her belief that the Federal Reserve will take assertive measures to stimulate the economy and counter the anticipated recessionary pressures.
In line with her adjusted expectations for the Federal Reserve, Boele’s perspective on the US dollar has also evolved.
With fewer rate cuts expected for the remainder of 2023 and into 2024, she has upgraded her view on the US dollar, considering it a positive development. “As a result of the change in our Fed view, we have upgraded our view on the US dollar,” says Boele. “We no longer have a rate cut for the Fed this year and fewer total rate cuts in 2023-2024. This is a positive for the US dollar.
Our view is roughly in line with the market.” Boele emphasizes that rate expectations, both real and nominal, along with the outlook for the US dollar, play a crucial role in driving gold prices. As a result of her revised outlook for the Federal Reserve and the US dollar, she has downgraded her gold price forecast for 2024 to $2,000 per ounce.
Despite the Federal Reserve’s potential easing typically being seen as favorable for gold prices, Boele believes that the upside potential for gold in relation to the US dollar is limited. She notes that investors currently hold net-long gold positions, which could be liquidated, posing a risk to gold prices.
Boele advises caution to investors, considering the current high levels of gold prices and the potential risks involved. From a risk-reward perspective, she suggests that being long on gold may not be the most attractive stance.
