Gold Market Outlook
After setting a record just over $3,500 an ounce in April, gold has consolidated and traded sideways since, and there is some bearish sentiment seeping into the market. Last week, Citigroup lowered its gold forecast, projecting the yellow metal would fall below $3,000 by the end of the year. Citi analysts cited easing geopolitical tensions, diminishing gold’s safe-haven appeal.
Reasons Behind the Forecast
Citi analysts hold a relatively sanguine outlook on the direction of the economy, saying there is a growing sense that it can avoid a recession and that inflationary pressures will remain contained. They believe that President Trump’s popularity and U.S. growth will kick in, especially as the U.S. midterms come into focus. Much of Citi’s optimism seems to hinge on a resolution of the trade war.
Counterarguments
Despite some growing bearish sentiment, there are at least three macroeconomic factors that should continue to support the gold market moving forward. These factors include de-dollarization, inflation, and recession worries. The dollar’s share of global reserve currencies slid further last year, and as the dollar’s share of reserves shrinks, gold’s is increasing.
De-dollarization
There is a growing movement around the world to diversify reserves away from the dollar. This trend is driven by the weaponization of the dollar as a foreign policy tool and concern about the U.S. government’s fiscal mismanagement. The dollar’s share of global reserves slid further last year, and as of the end of 2024, dollars made up 57.8 percent of global reserves.
Inflation
Despite cooling price inflation, monetary inflation is increasing. The M2 money supply has been rising, and this will eventually lead to rising consumer and asset prices. Investors will need to maintain an inflation hedge, and gold is a traditional hedge against inflation. The Federal Reserve constantly devalues the dollar, and wise investors should always be aware of the inflationary pressures in the economy.
Recession Worries
Most mainstream analysts seem to think a resolution of the tariff situation will prevent the economy from spinning into a recession. However, the U.S. economy is buried in debt and riddled with malinvestments, making it a bubble in search of a pin. At some point, the bubble will pop, and we will experience the inevitable bust.
Conclusion
While gold may see some selling pressure in the near term, these factors support a mid to long-term bullish outlook for gold. The de-dollarization trend, inflation, and recession worries will continue to drive demand for gold. Investors should consider these factors when making decisions about their portfolios and maintain an inflation hedge to protect against potential economic downturns. To stay up-to-date on the latest developments in the gold and silver markets, consider subscribing to a reputable news service for free commentary and analysis.
