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| Is gold the only means for China to fight deflation? |
A research firm is expressing optimism regarding gold, foreseeing its price soaring to $2,300.
As gold prices approach $2,300 per ounce, it is increasingly perceived as a valuable asset, particularly for investors who have held onto it for the past two years. BCA Research has maintained a bullish stance on gold since November 2022, citing sustained demand from emerging market central banks. According to Robert Ryan, BCA's chief commodities and energy strategist, their optimism regarding gold has only strengthened since 2022.
BCA recently revised its gold price target to $2,300 per ounce. While central banks continue to provide robust long-term support for gold, Lane, a member of BCA's team, attributes this new bullish momentum to an imminent shift in the Fed's monetary policy.
Lane's team anticipates that inflationary pressures will remain subdued this year due to robust labor productivity growth, driven by increased capital expenditures and research and development spending. This environment is expected to embolden the Federal Reserve to commence its policy rate cutting cycle in June, further bolstering gold demand.
Despite expectations of a rate cut in June, some skepticism is emerging in the market. The market's anticipation of easing within two months has decreased to approximately 58%, down from nearly 80% a month ago, according to the CME Group's Fed Funds Watch tool.
However, Lane believes that any delay in the Fed's easing cycle will only postpone gold's rally. He emphasizes the necessity of lower interest rates for sustained economic growth, foreseeing the Fed lowering interest rates to 2% over the next year or two and maintaining them at that level.
Additionally, Lane predicts stable commodity inflation for the remainder of the year due to normalized global supply chains. He notes that stable inflation and lower interest rates will provide bullish support for gold and the overall economy.
Furthermore, Lane anticipates that real interest rates will remain slightly negative, which will make bonds less appealing and weaken the dollar, removing significant obstacles for the gold market.
Looking beyond U.S. monetary policy, Lane expects continued support for gold from emerging market demand, particularly emphasizing strong demand in China. He highlights gold as a primary store of value in China's deflationary economy, where other investment options are limited due to the collapse of the real estate market.
In conclusion, Lane anticipates ongoing large-scale gold purchases by central banks as U.S. debt continues to rise, reinforcing gold's bullish trajectory.
