- Gold could soar above $US1,600 per ounce if the Federal Reserve cuts rates four times before June 2020, according to Harry Tchilinguirian of BNP Paribas.
- Global uncertainty has increased safe-haven demand for the precious metal and driven prices higher.
- If the Fed moves to ease more aggressively than BNP’s forecast, gold could soar even higher, Tchilinguirian said.
- Read more on Markets Insider.
Gold could soar above $US1,600 per ounce – its highest level since 2013 – next year if the Federal Reserve continues to lower interest rates, according to BNP Paribas.
It would be the third key psychological level the metal has breached in a year: it edged over $US1,400 in July and $US1,500 in August.
“Gold nudged up on the latest tit-for-tat US-China trade measures and is looking to move higher with more Fed rate cuts,” Harry Tchilinguirian, an economist at BNP Paribas, wrote in a note Wednesday.
Gold, long known as a safe-haven asset, has spiked this year as global uncertainty has pushed investors out of riskier assets like stocks. Other safe-haven assets have also rallied. A bond rally has pushed US Treasury yields to new lows, and even the US Dollar has maintained its strength amidst market volatility.
The deteriorating global outlook- driven largely by the ever-escalating trade war between the US and China – is creating fear in the markets that the US and other global economies could be nearing a recession. The Fed and Chairman Jerome Powell have repeatedly said that they’re watching the data and are ready to step in as necessary with rate cuts.
Tchilinguirian expects that the Fed will make four 25-basis-point cuts between now and June 2020, which will led nominal yields to fall push real yields near zero. This raises “the appeal of holding gold given economic uncertainty,” he said.
As the price of gold rises, it loses opportunity cost, and safe-haven demand for the asset increases. Demand “is likely to grow further with rising expectations of economic deceleration given the state of US-China trade tensions,” Tchilinguirian wrote.
Holdings of the precious metal in ETFs are heading toward highs last seen in 2012, he said. This prompted BNP Paribas’ increased forecasts for the yellow metal. BNP Paribas sees gold averaging $US1,400 an ounce in 2019 and $US1,560 an ounce in 2020. That’s a boost of $US60 and $US130, respectively.
If the Fed moves more aggressively than expected, “gold is likely to move above our forecast for that period,” he said.
The price per ounce of gold has risen 20% year-to-date.