“Despite gold prices reaching an all-time high, further increases are expected… ‘Possibility of weakened influence from the dollar'”

City’s Forecast Adjustment: Rate Cuts, Central Bank Purchases, and Hedge Demand

International Gold Price Soaring
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(Seoul=Yonhap News) Reporter Choi Yoon-jung – Despite a more than 30% surge in international gold prices since the beginning of the year, expectations for further increases are growing.

Some analysts believe the strength of gold prices requires attention to the weakening influence of the US dollar and potential changes in the international financial system.

On the 21st (local time), the international gold price surpassed $2,740 (about 3.79 million won) per ounce during the session, hitting an all-time high again.

As of 9:57 a.m. on that day, the prices were moving in the mid-$2,720 range.

Gold prices are expected to record the highest annual growth rate since 2007 this year.

Compared to a year ago when it was below $2,000 per ounce, the price has soared about 40%.

The Financial Times (FT) explained that demand for gold as a safe asset has increased due to overlapping uncertainties such as instability in the Middle East region and the outcome of the US presidential election.

The fact that central banks, including the US, have entered a rate-cutting cycle is also a backdrop for the rise in gold prices. Gold generally becomes more attractive when interest rates fall because it does not yield interest.

This year, central banks have also embarked on massive gold purchases.

According to the World Gold Council, central bank gold purchases in the first half of the year reached 483 tons, the highest ever.

Between May and September, funds flooded into gold exchange-traded funds (ETFs).

Citi raised its 3-month gold price forecast from $2,700 to $2,800 per ounce, Reuters reported. The 6-12 month forecast is $3,000.

Citi stated, “As the US labor market is expected to worsen further and central banks continue to purchase actively, gold prices are likely to continue their upward trend.”

Citi also noted, “Despite the recent trend of weakening Chinese retail demand and rising US interest rates, gold and silver have been very strong.”

Citi added that even if international oil prices surge due to short-term tensions rising in the Middle East region, gold prices will increase.

Goldman Sachs maintained its long-term recommendation last month, stating that “gold prices are expected to rise gradually due to global interest rate cuts, structural increase in demand from central banks, hedge effects against geopolitical risks, and recession concerns.”

Goldman Sachs forecasts a rise to $2,900 per ounce by early next year.

UBS has set its target price for next year at $3,000 per ounce.

Renowned economist Mohamed El-Erian, president of Queens’ College, Cambridge University, UK, said gold price increases could lead to a decrease in the influence of the US dollar and changes in the world financial system, which merits monitoring.

President El-Erian analyzed that the interest of central banks in gold purchases reflects their exploration of alternatives to the dollar-based settlement system.

He cited the general loss of trust in how the US manages global order, the US’s use of tariffs as a weapon, and Russia’s ability to continue operating its economy after being expelled from the Society for Worldwide Interbank Financial Telecommunication (SWIFT) as the background.

Additionally, perceptions of the US acting inconsistently when applying human rights and international law in relation to Middle East conflicts are also a factor, he added.

He pointed out that although other currencies or payment systems cannot replace the dollar, more bypass routes and increased interest in them pose a problem. If such phenomena take deeper roots, they could eventually weaken US national security, he warned.

merciel@yna.co.kr