YLG Bullion International recommends investors accumulate gold amid ongoing price consolidation as gold traders believe prices will rise in the medium to long term, particularly after the Federal Reserve cuts interest rates in the second half of this year.
YLG chief executive Pawan Nawawattanasub said global gold prices have risen 13.2% this year as of June 4, partly based on high demand from central banks and institutional investors as gold supply tightens, while domestic prices soared 20.2%.
Prices dipped from a record high of US$2,449.89 per ounce in mid-May, trading around $2,380 on Friday, attributed to profit taking, she said.
"However, gold prices clearly remain on an upward trend, supported by several factors such as concerns over global economic growth, geopolitical conflict, and accumulated purchases by central banks around the world," said Mrs Pawan, adding that limited gold supply is also driving prices over the long term.
The US Geological Survey reported only 59,000 tonnes of gold supply remains worldwide, while the average volume produced from mining is 3,000 tonnes per year. This suggests gold reserves will last for 19 years unless additional deposits are discovered.
The amount of gold brought back into circulation by remelting the metal totals 1,000 tonnes per year, which combined with the mining output is still insufficient to meet annual global demand of more than 4,000 tonnes per year, she said.
"All factors clearly support the upward direction of gold prices in the long term, especially over the next 1-3 years when the market expects global interest rates will gradually decrease," said Mrs Pawan.
Short-term price fluctuations mean investors should keep an eye on economic conditions, she said.
Factors to monitor in the near term include US economic data in the manufacturing and service sectors, inflation and the labour market, as well as the monetary policy of major central banks, said Mrs Pawan.
YLG predicts the gold price to have a resistance level of $2,450-$2,500 an ounce, and once it passes this level, the next resistance level is $2,650 per ounce.
For short-term investment, the trader recommends buying once the price drops to $2,277-$2,300 an ounce.
Gold trader Hua Seng Heng said gold prices rose sharply for a second straight day Friday after weekly US jobless claims grew by a greater amount than anticipated, which combined with a weakening labour market supports a Fed rate cut.
On Thursday, the European Central Bank lowered its key interest rates by 0.25 percentage points to 3.75%, prompting the market to believe the Fed might follow suit, said the trader.