Gold in Danger? German Bank Lowers Price Forecast Again, Reveals Latest Target

Gold prices are struggling to maintain the $4,000 per ounce support level, facing potential further selling pressure in the short term, according to Commerzbank analysts. The German bank has revised its gold price forecast downward for the second time in two months, now predicting a year-end price of $4,500 per ounce, a decrease from its June revision of $4,800.

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We think that the market's expectations for Fed rate hikes are currently too pessimistic, so there is still room for gold prices to rebound from current levels.

Analysts led by Thu Lan Nguyen attribute the downward revision to persistent inflationary pressures, which are compelling the U.S. Federal Reserve to maintain a hawkish monetary policy stance. While acknowledging that market expectations for Fed rate hikes might be overly aggressive, the report suggests that gold's recovery potential remains limited. Nguyen noted that the ongoing conflict in the Middle East, particularly the Iran war, has overshadowed earlier positive factors that pushed gold to record highs this year.

Commerzbank points out that the U.S., as an energy exporter, has benefited from the current energy crisis, evidenced by increased crude oil exports. This, along with risk premiums in foreign exchange markets, suggests the dollar is being viewed as a safer haven than the euro amid the conflict. This dynamic makes it difficult for gold to gain significant support from increased safe-haven demand.

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We expect the Fed to keep rates unchanged all the way until the end of this year, and only take action if inflation trends force the Fed to raise rates.

Despite rising geopolitical risks, the bank sees few signs of long-term impact on the U.S. economy. Nguyen stated that while short-term inflation has increased, long-term inflation expectations remain stable. In this environment, the Fed is unlikely to adopt aggressive monetary policies that could alter gold's long-term bullish trend. Commerzbank's base case scenario anticipates core inflation not significantly exceeding the monthly increase needed to meet the Fed's target, potentially leading the Fed to hold rates steady through the year and possibly begin cutting them by mid-2027 as inflation approaches the 2% target.

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Our economists' base case forecast has not changed, which is that core inflation in the coming months will not be significantly higher than the monthly increase required to achieve the Fed's target.