Gold and silver prices have rallied sharply as a combination of factors, including a potentially more dovish U.S. Federal Reserve policy and rising U.S. military spending boosting the deficit, is expected to drive gold prices back into an upward trend for the remainder of the year.
On August 5, spot gold rose 2% intraday to $4,159.04 per ounce, while spot silver gained 3% to $61.30 per ounce. This surge comes as the Bank of Korea (BOK) announced on August 3 that it would resume gold purchases for the first time since February 2013. The central bank's move, aimed at increasing gold's share in its foreign exchange reserves over the medium to long term, includes plans to explore new procurement channels, such as buying gold intended for export from domestic miners and purchasing financial products backed by U.S. gold ETFs to diversify its gold holdings.
Investment bank CITIC Securities believes the recent pullback in gold prices has approached historic extremes, with the $4,000 per ounce level likely representing a bottom for this cycle. Looking ahead, the firm expects that the impact of geopolitical tensions in the Strait of Hormuz on gold will shift from a headwind to a tailwind. Combined with a potentially more optimistic Federal Reserve policy than the market currently prices in and rising U.S. fiscal deficits driven by military spending, CITIC predicts that gold prices will re-enter an upward trajectory within the year.
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