- Top economist David Rosenberg said he expects the price of gold to reach $3,000 an ounce as the Fed cuts interest rates.
- This means a potential upside of 30% from current levels.
- He said the current rally is impressive because it overcomes typical macroeconomic challenges such as a strong dollar and declining inflation expectations.
While investors are bracing for a record stock market, their favorite safe-haven assets are also reaching new highs.
Gold prices hit a historic $2,328.7 an ounce last week, and one economist says the momentum could push the yellow metal as high as $3,000 before the next business cycle turns, or 30% from current levels. He says it is likely to rise.
David Rosenberg, a prominent economist and president of Rosenberg Research, said: In a recent note, he said gold's recent rally is “particularly impressive” not only because it has outperformed Bitcoin and major currencies, but because of the typical macro headwinds that often drag down gold's value. He said it was because he had overcome it.
“The rise in gold prices occurred during a period of a strong dollar and falling inflation expectations, during which the Fed moved market expectations toward a belief that it would be rising for a longer period of time.” , which nevertheless continued to move forward,” his team wrote in a memo.
But before jumping into the hype about the future of bullion, it's worth taking a look back at what's behind the recent rally.
strong demand
Rosenberg and his team say the main driver of recent highs is not on the supply side (which has been stable in recent years) but rather on the demand side, thanks to central banks recycling reserve assets. Ta.
As the Chinese yuan loses its status as the world's second largest reserve currency and countries such as Japan, Russia, Turkey and Poland worry about over-reliance on the US dollar, many countries are trying to navigate unique economic risks. They are turning to money as their security.
“After selling gold at the beginning of this century (when physically backed reserves were so outdated), central banks are once again increasing their gold holdings on a large scale,” he said, adding that central banks are increasing their gold holdings on a large scale. In the third quarter of 2023, it added that it bought 10,000 tonnes of gold, up from -77 tonnes in the same period in 2022.
Gold reserves of the world's central banks Source: World Gold Council, Rosenberg Research
It also found that while gold shines brighter in emerging markets such as India and China, Western investors are lagging behind as high interest rates and soaring stock prices make the low-yield metal less appealing.
Furthermore, increasing industrial use, especially in the active electronics sector, is also a factor pushing up prices.
“The boom in circuit manufacturing, as producers work around the clock to accommodate the insatiable wealth of AI-related models, is undoubtedly a tailwind for physical gold demand and is not going away anytime soon. ” the memo says.
fear of uncertainty
Rosenberg also attributes gold's recent rally to global geopolitical risks and an unpredictable macroeconomic outlook.
“It is difficult to argue with the direction of militarization, conflict and polarization in international relations, and as a result the risk-hedging function of the gold price has become increasingly important,” he said.
On the financial front, he said that with the U.S. debt-to-GDP ratio reaching 120% and the cost of services soaring, uncertainty surrounding election results and the possibility of an impending fiscal crisis are driving investors to He said he is increasing his gold holdings.
Next destination: $3,000
As gold's solid momentum continues, Rosenberg expects it to rise another 15%, and could rise 30% if central banks start cutting interest rates. He cited the historical negative correlation between precious metals and gold prices.
The economist presented two scenarios, both of which concluded that gold needs to rise further: a “soft landing” or a classic bear market.
In a “soft landing” scenario, assuming global real interest rates return to their pre-2000 average (higher than during the post-GFC recession), the US dollar depreciates by about 12% and gold prices rise by about 10 yen. I will do it. %.
However, if a recession hits the economy, global real interest rates return to their 2014-2024 average, stock markets stabilize, and the dollar depreciates by about 8%, gold could rise by 15%. This will be in the $2,500 range. .
Rosenberg Research's gold model predicts a 10-15% rise when easing begins. Source: Haver Analytics, Rosenberg Research
“Taken together, these observations and our modeling exercise suggest that the downside risk to gold is limited, but the upside potential is much greater. “It's much more likely that we'll reach $3,000 an ounce.” He added that gold prices will rise further due to rising geopolitical tensions.
“For investors, the decision is simple: Make sure your portfolio includes gold and overweight it. Downside risk is well contained (although a very short-term correction (This is not impossible and should be carefully considered.) However, the upside risks are intriguing.'' Rosenberg concluded.
