By Yusuf Khan
Gold prices have held firm so far this year, with demand for the precious metal high amid global economic uncertainty, and this trend is likely to continue as major central banks start to come to an end of their hiking cycles, according to a new report.
Overall, gold prices saw a 5.4% increase during the first half of the year, but had rallied to near record highs during the banking crisis, the World Gold Council said Thursday.
However, given the current state of the global economy, the WGC expects this trend to continue through 2023, with gold likely to continue performing well over the next six months.
"We expect gold to remain supported on the back of rangebound bond yields and a weaker dollar," the industry body said in its mid-year report. It noted that gold outperformed all other major assets apart from developed market stocks, and was a key diversifier against economic strife.
Looking ahead, monetary policy is likely to play a key part in gold's performance this year with markets expecting just one more rate hike from the Federal Reserve, while the European Central Bank and Bank of England are also likely to come to the end of their respective hiking cycles by year end, the WGC said.
In doing so, the WGC expects slow growth in developed markets which should support gold due to it normally performing well in a time of crisis.
"Slightly lower interest rates and a weakening U.S. dollar will help gold by reducing its opportunity cost for investors," the WGC said, adding that gold prices have generally risen when interest rates have been held.
That said, the WGC doesn't expect a major rally in prices. Under the scenario of a soft landing--where a recession is avoided but monetary policy remains tight--gold may be less attractive than other haven assets such as treasuries.
Gold prices hit a peak this year of $2,055.70 a troy ounce on May 4, but have since moved back to $1,915.50 a troy ounce.
Write to Yusuf Khan at yusuf.khan@wsj.com
(END) Dow Jones Newswires
07-06-23 0907ET
