Silver Gold

Gold and Silver Outlook Dimmed by Cautious Fed Rate Cuts

EDITOR'S NOTES

Commerzbank slashes its 2024 forecasts for gold and silver, pinning the blame on a less aggressive Federal Reserve rate-cutting strategy. Analyst Thu Lan Nguyen trimmed the gold target to $2,100 per ounce, shy of its peak, and silver to $28, dialing down from an earlier $30 prediction. The revision stems from the Fed’s tempered approach to interest rate reductions, with a new outlook suggesting rates will only drop to 4.25% by end-2025, countering earlier expectations of a steeper descent to 3.50%. Despite this bearish adjustment, Nguyen holds a glimmer of optimism, arguing gold and silver’s appeal isn’t entirely dimmed. Persistent inflation, challenging the Fed’s 2% goal, may still cast these metals as attractive hedges, suggesting their prices could yet climb within a constrained monetary easing environment.

Commerzbank downgraded its gold and silver 2024 price targets as the Fed cuts rates less aggressively

Gold and silver’s extended consolidation is taking its toll on sentiment as an international bank is lowering its price target for this year.

In her latest note on gold, Thu Lan Nguyen, head of research at Commerzbank, said she is lowering her price target for gold by $50. At the same time, the commodity analyst is also lowering her year-end target for silver.

Nguyen said that she sees gold prices rise to $2,100 per troy ounce over the course of this year, which would put the price below December’s all-time high of $2,135.

Looking at silver, Nguyen said that she sees the precious metal ending the year at $28 an ounce, down from the initial forecast of $30 an ounce.

“This is largely due to the expectation that the U.S. Federal Reserve will lower its key interest rate far less in the coming cycle than we had previously expected,” she said.

Since late December, the German bank had been expecting the Federal Reserve to cut interest rates aggressively as inflation weakened and economic activity softened. Commerzbank expected interest rates to be cut to 3.50% in the next two years.

However, the bank’s economists have now revised their expectations as economic activity remains positive and inflation remains stubbornly elevated. Commerzbank now sees the Fed Funds rates falling to only 4.25% by the end of 2025 as the Federal Reserve maintains its restrictive for longer monetary policy.

The Federal Reserve has been clear that while interest rates are expected to move lower, it needs to see more evidence that inflation will fall back to its 2% target.

While Commerzbank is downgrading its year-end price target, Nguyen said she still sees limited downside for the precious metals.

One reason Nguyen remains somewhat optimistic about gold and silver is that it's unlikely the central bank will be able to bring inflation down to its 2% target.

“The ongoing inflationary risks should benefit the gold price, as they put pressure on the outlook for the US real interest rate and therefore make gold investments continue to appear attractive in relative terms,” she said.

“All in all, we are therefore sticking to our view of a rising gold price this year. Next year, however, the price should stabilize due to the US Federal Reserve's limited scope for interest rate cuts,” she added.

This article originally appeared on Kitco News

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