21.02.202407:35 Forex Analysis & Reviews: 2025: Gold and oil raise rates

In Asian markets on Tuesday, gold prices remained within a narrow range amid fears of long-term interest rate hikes. The absence of trading signals was also due to a holiday in the American market.

Gold demonstrated some strengthening, reaching the $2000 per ounce mark after recovering from a two-month low over the last two trading sessions. However, current fluctuations in gold prices are still occurring within the range of $2,000-$2,050, which was established for the majority of 2024.

Spot gold prices increased slightly by 0.1% to $2,019.17 per ounce, while the price of gold futures expiring in April settled at $2,030.20 per ounce as of 23:34 Eastern Time.

Analysts from Citibank highlight three main catalysts that could push gold prices to $3000 per ounce and oil to $100 per barrel in the next 12-18 months. Among them are a sharp increase in gold purchases by central banks, stagflation, and a deep global recession. Currently, gold is trading around the $2016 mark and could rise by approximately 50% in the event of any of these scenarios materializing.

Analysts point to dedollarization in central banks of developing countries as the most likely path to reaching $3000 per ounce of gold. This would lead to a doubling of gold purchases by central banks and shift the focus of demand from jewelry to gold as the main driver.

Central bank gold purchases have reached record levels in recent years, aiming to diversify their reserves and reduce credit risk. Leading this trend are the central banks of China and Russia, as well as India, Turkey, and Brazil, actively increasing their gold bullion purchases. According to the World Gold Council, global central banks have maintained a level of net gold purchases exceeding 1000 tons for two consecutive years.

In the context of a global recession, a deep economic downturn could force the United States Federal Reserve to drastically cut rates, which, in turn, could be the reason for gold prices to rise to $3000. Gold traditionally exhibits an inverse correlation with interest rates, becoming a more attractive asset compared to fixed income in a low-rate environment.

Stagflation, combining high inflation with economic slowdown and rising unemployment, could also trigger a rise in gold prices, despite the low likelihood of such a scenario. Gold is perceived as a safe haven in periods of economic instability, attracting investors looking to avoid risks.

In addition to the above factors, Citi suggests that the baseline scenario for gold involves reaching a price of $2150 per ounce in the second half of 2024, with an expected average price just over $2000 per ounce in the first half of the year. Record prices may be achieved by the end of 2024.

Although geopolitical tensions in the Middle East provide support for gold prices, a more significant price increase is restrained by the prospect of long-term interest rate hikes in the US.

Traders are lowering expectations regarding the Federal Reserve's imminent rate cuts following reports of high inflation in the US, and statements from Fed officials reinforce assumptions about maintaining high interest rates over a longer period.

The outlook for gold in the near future remains uncertain, similar to the situation in the market for other precious metals. Prices for platinum and silver show a decline, and copper experiences a slight drop in price, despite a reduction in the base interest rate in China, the largest importer of the metal.

In the context of the oil market, analysts consider a scenario where oil prices could once again reach $100 per barrel, considering risks associated with geopolitical tensions, actions by OPEC+, and possible supply disruptions from key oil-producing regions. Tensions in the Middle East, particularly the conflict between Israel and Hamas, and increasing tension on the border between Israel and Lebanon highlight potential risks for oil suppliers in the OPEC+ region.