Geopolitical and structural factors have allowed gold to reach $2,600 an ounce within a year, according to a market veteran.
The precious metal has hit successive record highs this year, including another on Thursday when spot gold topped $2,300 before weakening slightly. Early Friday, it was trading around $2,278 an ounce.
The reasons for its rise – and how far it could go in the short to medium term – are hot topics among investors, especially as stock market gains remain robust.
Juerg Kiener, chief investment officer at Swiss Asia Capital, told CNBC’s “Street Signs Asia” on Wednesday that his analysis of the gold forward curve “looks fantastic.”
“If you look at your one-year forward curve, it’s about 26 ($2,600). I think we could be very quick to take out 23 ($2,300), because there is a lot of pent-up demand,” he said.
He added that an inventory collapse in the gold market puts “many derivatives structures at risk.”
“This probably also puts many structures that play gold in the market at risk, because (traders) might not be able to cover (their short positions). What if I say 26 is not for me than a forward curve, in case we get a short squeeze, the numbers would go up a lot more.”
A short squeeze occurs when the price of an asset rises sharply and those with short positions – who were betting on a decline in price – are forced to buy the asset to avoid further losses, which usually makes increase the price even more.
Kiener also cited geopolitics, the shift to a “multipolar world” and changing international trade structures as reasons for his optimism about the price of gold. Another reason was that governments were “printing money like there was no tomorrow,” he added.
Gold is generally considered a safe haven and also a potential hedge against inflation.
Geopolitics has been cited by several analysts as the basis for a medium-term bullish case for gold, amid wars in Gaza and Ukraine, the upcoming US elections and the possibility of a recession in major economies. . Another frequently cited factor is the likelihood of interest rate cuts from the US Federal Reserve, three of which are expected this year. Lower borrowing costs tend to increase the appeal of gold as investors move away from fixed-income assets like bonds.
“We have a massive flow of precious metals leaving the West,” he said, adding that there was a “real shift” towards growing demand for precious metals in Asia and the BRIC countries in general.
Chinese investors and households showed increased demand for gold in 2023, according to the World Gold Council, as the country’s real estate market remained in turmoil and stock markets fell.
Central banks have also increased their gold reserves over the past year, supporting prices.
cnbc
