Gold remains confined within a broad trading range and continues to be weighed down by short-term inflation concerns. These inflationary pressures are reinforcing market expectations for hawkish interest rate policies. However, one international investment firm still anticipates that gold prices will climb above $5,000 per ounce before the end of the year.
Lorenzo Portelli, Head of Cross-Asset Strategies at Amundi Investment Institute, stated in a recent precious metals report that the current energy shock, driven by the ongoing conflict involving Iran, is expected to have only a short-term impact on inflation.
Portelli said in the report, "Looking ahead over the next 12 months, we maintain a constructive view on gold and believe prices have the potential to advance towards $5,500."
Although turmoil in the Middle East has caused energy prices to surge, pushing the annual inflation rate to a two-year high of 3.3%, core consumer prices have only risen modestly to 2.6% over the past 12 months.
While core inflation remains above the US Federal Reserve's 2% target, it has not accelerated further.
Portelli stated, "Core inflation remains relatively moderate and contained, which reduces the necessity for central banks to adopt a more hawkish stance. In our view, the inflationary impulse triggered by the energy shock is more likely to be transitory rather than persistent."
Simultaneously, Portelli pointed out that investment demand for gold is not solely driven by US interest rates. He added that with gold prices having retreated approximately 15% from the January all-time high, much of the "bad news" has already been priced in by the market.
He said, "Central bank demand will likely remain strong, especially as emerging market central banks continue to drive reserve diversification and reduce reliance on traditional currencies. We do not believe this trend will reverse in the near term. For reserve managers seeking to decrease dollar dependency and enhance portfolio resilience, gold remains a strategic asset."
Portelli also noted that rising sovereign debt levels and increasing liquidity concerns in private credit markets will drive more capital towards hard assets like gold, even if prices may remain volatile in the short term.
He stated, "In the short term, some central banks might strategically utilize a portion of their gold reserves to defend their currencies during periods of heightened market volatility, including risks stemming from Middle East geopolitical tensions. While such operations are possible, they should not be interpreted as a structural shift away from gold by central banks. Instead, this reflects short-term policy management in a more uncertain environment."
Portelli concluded by emphasizing, "Ultimately, we still view gold as a valuable safe-haven asset. Gold is not a universal hedge against all market shocks, but it remains an effective form of protection against systemic risks, currency weakness, and policy uncertainty."
Comments