Can the gold price outshine sticky inflation?

The gold price has descended in recent times, but will it bounce back or continue to struggle?

Since 15 August, the spot gold price has fallen 2.9% from US$1815.50 an ounce to US$1,761.10 an ounce, CNBC data shows.

ASX shares impacted by the gold price include Evolution Mining Ltd (ASX: EVN), Northern Star Resources Ltd (ASX: NST) and Newcrest Mining Ltd (ASX: NCM).

What’s the outlook for the gold price

Multiple analysts are cautious on the gold price. Since March, gold has shed 13.8% from a high of US$2043.30 an ounce on 8 March.

City Index senior market analyst Matthew Simpson is predicting gold could fall to US$1700 an ounce. He said in comments provided to The Motley Fool:

A clear indication that gold investors are concerned is that the CBOE gold volatility index (GVZ) and downside protection – via put options – are both on the rise.

Simpson said gold will be highly sensitive to both the Jackson Hole Symposium and Core personal consumption expenditures (PCE) inflation data this week. US Federal Reserve chair Jerome Powell is set to speak at the central bank’s annual event on Friday. Simpson added:

Concerns that Jerome Powell will deliver a hawkish tone to his speech alongside a recession warning has seen the US dollar continue to surge and weigh on the yellow metal, as it gets dragged lower with metals and risk sentiment in general.

However, he noted a bullish case for gold would be a weak inflation print, and Powell delivering a “less hawkish” speech than expected. But he said, “that isn’t looking too likely right now, so we are on guard for further losses for gold and its potential to move fall to $1700”.

Meanwhile, ANZ senior commodity strategist Daniel Hynes and commodity strategist Soni Kumari are also tipping gold to “find its floor” at about US$1,700 per ounce.

Analysts noted aggressive federal rate hikes and the higher US dollar are “holding down the gold price in a research note last Thursday. However, they are predicting the central bank to ramp up purchases as currencies weaken. The analysts said:

While growing recession fears, due to rising rates against sticky inflation, should see some haven flows, central bank purchases are likely to be strong as currencies depreciate and geopolitical risks rise. This should help mitigate weaker physical demand.

However, Evolution Mining executive chairman Jake Klein has predicted gold could hit more than $2,000 per ounce next year, Bloomberg reported last week.

Evolution reported in financial results last week that it achieved a realised gold price of US$2,425 an ounce in FY22.

Meanwhile, Newcrest reported a realised gold price of US$1,787 per ounce. Northern Star is due to report FY22 results to the market on Monday. 

The post Can the gold price outshine sticky inflation? appeared first on The Motley Fool Australia.

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Motley Fool contributor Monica O’Shea has no position in any of the stocks mentioned. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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