The price of gold could rise as high as US$2,050 per ounce from $1,910 at present as soon as it becomes clear that the US Federal Reserve has finished its interest rate hike cycle, which is likely to happen next year, says the World Gold Council (WGC).
John Reade, chief market strategist of the WGC, said gold is close to its all-time high at the moment, but lacks any drivers to break through upside resistance to fresh all-time highs.
"Gold seems stuck in a short-time range at the moment," Mr Reade told the Bangkok Post, citing an anticipated US recession that has yet to emerge.
"With the US economy stronger than expected and resistant to slowing, market participants are still waiting for clear signals that the Fed has done with hiking [rates]. Even if the Fed were to pause for longer, lingering risks of further hikes are likely to remain for the remainder of the year," he said.
As a result, gold would probably trade in a broad range of $1,850-2,050 an ounce until the US has clearly finished its interest rate hike cycle, said Mr Reade.
According to the WGC's analysis, gold performs in line with long term averages during periods when the Fed is "on hold". It delivered a mean monthly return of about 0.7% over the past three periods when the Fed was on hold.
"But it seems inevitable that the next big move from the Fed will be to cut interest rates, either because growth and inflation have slowed sufficiently, or because of recession or even a financial crisis," Mr Reade said.
These sorts of events tend to see gold perform well, although such moves seem more likely to be a "2024 story" rather than taking place this year, he noted.
Mr Reade said gold is close to its all-time high at the moment but apparently it lacks any drivers to break gold through upside resistance to new all-time highs.
Gold held up very well over the past couple of years even though the dollar has been strong and real US interest rates have surged to five-year highs.
"Yet the gold price is near its all-time high and appears to find strong support when selling pressure emerges. That is partly because central bank gold purchases continue to surprise to the upside," he said.
Although slower compared to the second half of 2022, net central bank gold purchases hit a first half record in the first six months of this year in spite of large, event-specific sales by Turkey.
"Anecdotally, central banks are price sensitive, thus buy more gold when the price is near the weaker end of its current range."
The other aspect is over-the-counter (OTC) investment.
"It is hard to identify due to the opaque nature of OTC trade, but we believe buying from institutional investors, corporates and rich individuals has supported the gold market this year. Certainly, anecdotal evidence from my repeated trips to Asia this year supports this view," he said.
"Next year should see upside catalysts materialise once the Fed's trajectory can be more confidently predicted."