A growing narrative hinting at a faster-than-expected US interest rate hike could push gold prices down to US$3,600 an ounce or as low as 55,000 baht per baht weight for domestic gold bars in the near term amid persistent concerns over elevated inflation, says YLG Bullion and Futures.
YLG chief executive Tipa Nawawattanasub said the key near-term pressure for gold is US monetary policy, as markets are wrestling with the possibility of "higher-for-longer" Federal Reserve (Fed) rates and an earlier-than-expected tightening cycle.
"While the June meeting and recent polls suggest the Fed will hold rates steady, there are growing narrative hints of a faster-than-expected tightening cycle," said Ms Tipa.
If the Fed hikes in October, driven by sticky inflation from energy shocks and prolonged conflicts, that would be a major headwind for gold, pushing real yields, currently sitting around 2%, and the dollar higher.
YLG sees immediate psychological support for gold at $4,000 for the time being, or 61,000 baht per baht weight for domestic gold bars.
Bullion has decreased 9.41%, or $430 an ounce, over the last 30 days due to lingering conflicts in the Middle East pushing global oil prices to skyrocket.
"If $4,000 is breached, gold will likely find its ultimate bottom at $3,600. Given the exchange rate of 32.5 baht to the dollar, domestic gold bars would be quoted at 55,000 per baht weight," she told the Bangkok Post.
Goldman Sachs last Friday slashed its gold price forecast by $500 an ounce to reflect the increased likelihood that the Fed will raise rather than cut interest rates this year.
In the event of a rate hike, the bank sees the year-end gold price falling to $4,400 as "demand for gold as a macro policy hedge could unwind more persistently".
Ms Tipa, however, reiterated that the gold price is currently undergoing a consolidation, not a structural trend reversal.
The long-term upside remains firmly intact because core structural drivers, primarily aggressive central bank demand, dedollarisation trends and high sovereign debt levels, continue to underpin longer-term support.
Central banks worldwide made net purchases of gold totalling 244 tonnes in the first quarter, a 3% increase year-on-year.
Central bank purchases in the first three months were also higher than the previous quarter and the five-year average, she noted.
Beijing has expanded its reserves for the 19th consecutive month as of May, adding 10 tonnes that month and 25 tonnes year-to-date. The People's Bank of China now holds roughly 2,332 tonnes, accounting for about 8.9% of its foreign-exchange reserves.
A World Gold Council survey of 76 central banks found that about 89% expect global official reserves to rise further, while 45% plan to increase their own holdings, underscoring sustained institutional demand, Ms Tipa pointed out.
