Gold prices were stagnant in early May, settling just above the US$2,300 threshold during the first weekend of the month, after briefing touching the lowest level since early April.
Although prices are projected to remain highly volatile for much of the first half of this year, given the state of the US economy, global interest rate trends, and the confrontation in the Middle East, analysts still have a positive view for gold over the long term.
Looking ahead, mounting signals of economic vulnerability, the Federal Reserve's plans to start easing and the emerging downtrend in the US dollar should be bullish for bullion, said analysts.
Gold trader Hua Seng Heng said gold prices were volatile because there are many factors, including a policy statement by the US central bank on May 1 about interest rate trends and inflation that caused the market to believe rates would be high for longer.
Fed chairman Jerome Powell dismissed the idea of resuming rate hikes and indicated the next move is still likely a cut, despite renewed inflation worries. This dovish stance injected a sense of optimism into the market, boosting risk assets at the expense of defensive plays.
However, the Fed remains committed to strong consumption and employment figures even as inflation remains well above its target. Given all these uncertainties, gold may not settle in a clear direction and could move within a narrow range for a while, said Hua Seng Heng.
SIGNIFICANT RALLY
Gold prices have soared since the beginning of the year, rising almost 20% to reach an all-time high of $2,431 per ounce in late April, supported by continuous buying from central banks globally. Rising tensions in the Middle East after Iran confirmed it would retaliate against Israel's attack on the Iranian embassy in Syria also supported the rally of the safe-haven asset.
The baht also depreciated to weaker than 37 to the US dollar, causing domestic gold prices to post an all-time high of around 42,000 baht per baht-weight.
Gold prices then retreated in late April ahead of the Fed meeting at the end of the month, but remained on course for a third consecutive monthly gain. Spot gold dropped by 1.8% to $2,292.60 an ounce on May 1.
The direction of US interest rates remains an important factor for fund movement, gold prices, Thai interest rates, and the recovery of the world economy. If the Bank of Thailand cuts its policy rate ahead of the US, it might stimulate fund outflows, causing the baht to slide further and push gold prices to rise.
The Monetary Policy Committee (MPC) held the rate steady in April, but there is a chance the MPC could start to cut the rate next month, which is when some analysts expects the Fed to begin lowering US rates.
A trader arranges gold ornaments at a shop in Bangkok's Yaowarat area. Nutthawat Wichieanbut
CENTRAL ALLURE
Jitti Tangsithpakdi, president of the Gold Traders Association (GTA), said domestic gold prices still have a chance to increase, possibly hitting 44,000 baht this quarter. The main factor is many central banks around the world buying more gold as a reserve to mitigate risks from tensions in the Middle East, resulting in supply tight, he said.
Mr Jitti said he expects the Fed's delayed rate cuts might not have much weight on the price of gold.
"The shift from central banks using dollars as a reserve to gold has caused the gold price to rise substantially as demand increases. This trend is likely to continue," he said.
GTA expects the global gold price may increase to $2,500 an ounce this year, but not $3,000.
"Anyone thinking of investing in gold during this period still has a chance to make a profit. Even if the price fluctuates in short term, over the long run the price of gold should continue to rise," said Mr Jitti.
According to the World Gold Council, central banks around the world have continued to purchase gold. During 2022-2023, they purchased more than 1,000 tonnes of gold per year, and are still buying through this year.
China is the top buyer of gold and has been a net buyer for 17 consecutive months, followed by Turkey and India. Thailand also accumulated more gold and has the highest gold reserves in Southeast Asia.
Apart from central banks, gold demand for investment has also risen. Many investors look to gold when the prices of stocks, bonds and property drops drastically. Investing in gold also diversifies a portfolio as varying returns can help protect the value of investments.
Gold prices soared significantly since the beginning of the year, soaring almost 20% to reach an all-time high of $2,431per ounce in late April supported by continuous buying from central banks globally. Apichart Jinakul
TARGET: $3,000
According to senior commodities strategist Aakash Doshi at Citigroup, gold is set to reach $3,000 an ounce over the next 6-18 months on increasing investor inflows amid expectations the Fed will eventually cut interest rates this year.
The Citigroup comments add to a roll call of Wall Street banks that raised forecasts and upgraded their estimates for average prices in 2024 to $2,350, making a "massive 40% upward revision" in their 2025 prediction to $2,875.
Trading will "regularly test and breach" $2,500 in the second half of this year, the bank wrote.
According to Citigroup, gold will be driven by increased flows from managed money players, who are already showing signs of catching up with demand from physical consumers in China and central banks.
The start of a Fed cutting cycle or a potential recession into 2025 will provide further impetus for investment demand, noted the bank.
Inflows into gold-backed exchange-traded funds (ETFs) largely absent in recent years will "buffer the path to $3,000", Citigroup analysts wrote.
Goldman Sachs joined Citigroup's optimism, noting it raised its gold price forecast to $2,700 per ounce by year-end, up from $2,300 previously as it believes gold is in an "unshakeable bull market".
However, Goldman Sachs said there are potential factors that can help to at least restrain gold rate upside, if not generate a bearish reversal. These include a peaceful resolution to conflicts in the Middle East and Ukraine and a settling of associated sanctions risk, major emerging central banks concluding their gold-buying programmes, an easing of China growth concerns, and a significant hawkish Fed adjustment leading to hikes.
"This would likely present a catalyst for renewed ETF selling. Yet the reality is the near-term potential for a combination of these developments is low, which underpins our expectation for continued bullish momentum in the gold price," said the investment bank.
Thailand Gold Research Center said the price of Thai gold and spot gold this year have increased by roughly 20%.
The centre said the gold price confidence index in the second quarter increased to 68.5 from 51.7 in the first quarter, a gain of 32.6%, attributed to baht depreciation, inflation, concerns about a global recession, the speculative buying power of funds, and demand for safe assets.
"When the price increases for a long period, investors need to be more careful, even though gold still has a chance to increase in the long run," stated the centre.
Customers browse ornaments at a gold shop on Yaowarat Road. Pornprom Satrabhaya
FACTORS TO MONITOR
Analysts said the main factor that can influence gold prices is supply and demand, such as changes in gold mining production or demand for jewellery, electronics and other industrial uses.
Investor sentiment is another factor as economic uncertainty, geopolitical tensions and inflation fears can drive people to seek the safety of gold, increasing demand and driving up prices.
Gold typically has an inverse relationship to interest rates. When rates are low, the opportunity cost for holding gold is lower, so its price tends to rise.
Currency movement also affects gold as it is priced in dollars, meaning exchange rate fluctuations can impact its price for investors holding other currencies. Central bank policies can change the market, especially large purchases and selling of gold reserves, influencing supply and demand dynamics, according to analysts. Inflation is vital because gold is often seen as a hedge against it, so expectations or actual increases in inflation can lead to higher gold prices, note analysts.
Analysts say supply and demand issues, inflation, interest rates and investor sentiment can all influence gold price movement.