Editor’s Note: Stay tuned for the daily news with so much market volatility! Catch up in minutes with our quick round-up of the news to read today and the expert opinions. Register here!
(Kitco News) – The gold market continues to struggle after last week’s big sell-off, and one company warned investors that there is even more downside potential for the precious metal.
In a report released Monday, Kieran Tompkins, a commodities economist at Capital Economics, said he sees year-end gold prices 4% lower than current prices, with a year-end target of $1,650 an ounce.
Rising real yields point to lower gold prices in the second half of the year, Tompkins said, adding that gold is down 15% from March highs. The comments come as gold price continues to test the long-term support around $1,730 an ounce.
“While the gold price has fallen sharply in recent months, including another small drop today, it still appears much higher than its typically strong inverse relationship to longer-dated US TIPS yields would suggest. We suspect the gold price will continue to fall as the usual relationship with TIPS yields partially reaffirms,” Tompkins said in the report.
The gold market started the year strong as investors sought to protect themselves against an unprecedented rise in inflation. However, Tompkins noted that inflation fears have recently eased and have been replaced by concerns about a recession.
“A few months ago, we highlighted that one of the pillars behind gold’s past resilience may have been concerns about high inflation. But these concerns have eased in recent months, with a major pullback in 5-year/5-year future inflation expectations roughly reflecting the decline in gold prices,” he said.
On Friday, 5-year/5-year break-even inflation stood at 2.62%, the lowest level since the start of the year. Some analysts have said breakevens need to stabilize to give the gold market a chance to form a bottom.
In addition to rising real returns, Capital Economics expects a strong US dollar to continue to be a headwind for gold. The British research firm said the dollar should reach and eventually surpass parity with the euro.
Disclaimer: The views expressed in this article are those of the author and may not reflect those of Kitco Metals Inc. The author has made every effort to ensure the accuracy of the information provided; nor Kitco Metals Inc. neither the author can guarantee such accuracy. This article is for informational purposes only. It is not a request to exchange commodities, securities or other financial instruments. Kitco Metals Inc. and the author of this article assumes no liability for loss and/or damage arising out of the use of this publication.