Gold's shine dims: Bulls see long-term sparkle, bears price in 40% crash

 

Gold prices have retreated from all-time highs, as profit booking wiped some shine off the precious metal. However, going ahead, experts believe the rally is likely to continue after a brief consolidation.

Prices of the yellow metal had hit lifetime highs as global investors had rushed to the safety of gold amid geopolitical uncertainties. As the value soared, some experts believed that the asset has been significantly overbought and is poised for a correction.

Gold prices have trimmed some of their gains, witnessing temporary sell-off which generally tends to happen when the commodity is trading at all-time high. Currently, investors feel the risk/reward ratio is not favourable on the upside, therefore, they are taking their profits off the table, noted Bhavik Patel, Senior Commodities Analyst, Tradebulls Securities. Further, investors have been booking gains in the safe haven asset to cover losses in other trades, as the global rout wipes trillions off investors’ portfolios.

Ahead of U.S. President Donald Trump's tariff announcement, the price of gold was on an uptick, led by heavy central bank buying and fears of retaliation from key trading partners and the potential for a full-blown trade war boosted safe-haven demand, limiting losses. Investors had also shifted their preferences to physical gold deliveries, instead of cash settlements amid concerns that tariffs could disrupt shipments.

According to experts, going ahead, the price of gold is likely to soar further, with Bank of America analysts estimating that COMEX gold prices could reach $3,500 per ounce in the next two years, while Goldman Sachs expects gold at $3,300 per ounce towards the end of 2025. Currently, COMEX gold prices are hovering around the $3,100 per ounce level.

However, in the short-term, the trend could be mildly negative, with prices set to consolidate. “There are plenty of reasons for gold not to correct,” stated Patel, “the trade war concerns, ongoing geopolitical conflict, the acceleration of de-dollarization, strong central bank buying are supporting prices.”

Therefore, if gold falls, there are plenty of tailwinds to help the safe-haven asset bounce back from lows. On the flip side, there aren’t many near-term triggers for gold to scale fresh peaks, he added.

Sharing an incredibly bearish outlook, research firm Morningstar believes that gold prices could see 40 percent in value eroded over the next few years. From the current price, a Morningstar analyst sees gold near the $1,820 mark. If this fall were to be replicated domestically, it would lead to gold prices falling to the Rs 55,000-Rs 56,000 per 10 grams mark.

According to Morningstar, the increased supply of gold would lead to a drop in prices, as demand would fail to keep up. Due to the rising lucrativeness of mining for gold, countries across the globe have ramped up production, while gold recycling has also risen.

Further, the research firm believes that central banks are likely to decrease their relentless buying of gold. Investor appetite is also likely to dip given that concerns about the economy are typically short-term factors that influence gold prices, said the Morningstar report.

Patel dismissed the report. “A 40 percent fall in gold prices will only happen if there aren’t any trade wars, the global economy is expanding, equity markets are at all time high and there aren’t any geopolitical concerns. Currently, we don’t see such a scenario playing out.”