ANZ: "We raise our [Gold] price target to $2,550/oz for year end."

Introduction:

Authored by GoldFix ZH Edit

In a report dated August 13th from ANZ Bank, titled "Gold to Get Its Medal," The bank provides an in-depth analysis of the current and projected performance of gold as a strategic asset.

They highlight potential impacts of the U.S. Federal Reserve's upcoming interest rate cuts, central bank purchases, and global physical demand on gold prices. With a year-end target of USD 2,550 per ounce announced, the report underscores gold's resilience and attractiveness in the face of economic and geopolitical uncertainties.

Federal Reserve’s Impact on Gold:

They begin by addressing the Federal Reserve's anticipated rate cuts, which are expected to initiate a new cycle of strategic investment in gold.

Historically, lower interest rates reduce the opportunity cost of holding non-yielding assets like gold, making it more attractive to investors. The analyst predicts that the Fed's easing, starting potentially in September 2024, will serve as a catalyst for a significant uptick in gold prices.

From the Report:

We expect 50bp of rate cuts in 2024 and a total of 200bp of cuts in this easing cycle. Interest rate cuts are normally positive for gold as they reduce the opportunity cost of holding gold.

The report then presents a graphical analysis of gold prices in relation to previous U.S. rate cut cycles, showing a consistent rise of 5-6% following the first rate cut. This pattern is expected to repeat, supported by geopolitical tensions and the upcoming U.S. elections, which are likely to increase market volatility and drive haven demand for gold.

Gold Performance after Rate cuts…

 

Central Bank Purchases:

Central banks have played a pivotal role in sustaining gold demand, with purchases continuing to provide a strong base despite some moderation in the second quarter of 2024.

The Bank forecasts annual central bank gold buying to reach 800 tons in 2024:

Elevated geopolitical and economic risks suggest the trend in the official sector buying will continue. We keep our estimate for official gold demand to be near 800t in 2024.

Notably, the report mentions the significant, albeit unreported, gold purchases that have dominated quarterly demand. For instance, the People's Bank of China (PBoC) has slowed its gold accumulation since prices crossed USD 2,000 per ounce, yet remains a critical player in the market.

China Buying slows, But India buying Picks up Pace…

The Reserve Bank of India has also increased its gold reserves, further reinforcing gold's role as a hedge against economic uncertainties.

Physical Demand and Market Dynamics:

The report also delves into the physical demand for gold, particularly in key markets like China and India. While global physical demand moderated in the second quarter of 2024, the Bank expects this softness to be temporary. China's gold imports, despite a decline in Q2, are projected to remain robust, driven by a weak property sector and a downtrend in equity markets.

Seasonal Factors Loom Large now…

 

India's gold demand, on the other hand, is poised to benefit from strong economic growth and recent reductions in import duties. The report highlights the importance of the upcoming festive season and the positive impact of monsoon rainfall on rural incomes, which traditionally boost gold purchases. The Bank predicts that India's gold consumption could reach 500 tons in the second half of 2024.

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