Gold prices might be are under pressure from the current “risk-on” environment for equities and rising interest rates, but several analysts expect the price to recover and say the precious metal can provide investors some real risk protection.
Gold is currently trading around $1,210 per troy ounce. During Monday’s session it fell to $1,204.45, the lowest level since March 15. Several factors are weighing on the price, including the rising interest rate environment where the U.S. Federal Reserve’s hawkishness has pushed up the dollar, which consequently puts pressure on the dollar-denominated metal.
However, inflation in the U.S. may prove beneficial for gold, according to Nitesh Shah, commodities strategist at ETF Securities. Gold is traditionally seen as a hedge against inflation.
“We believe that inflation in the U.S. will remain elevated and will rise above 2 percent. And therefore the real interest rate in the U.S., despite interest rates increasing, will remain quite subdued,” Shah told CNBC on Monday.
Shah predicts this will give gold prices an opportunity to rise to about $1,260 per troy ounce by the end of the year. He added that gold provides a hedge against event risks.
“Gold still remains a very good hedge towards event risks and with key events like the escalation of tensions in the Middle East, or the sabre rattling between the U.S. and North Korea, we think that gold has potential to spike upwards should any of these tail events come to the fore,” he said.
Gold’s current price means also means it is now cheaper for investors seeking insurance against other assets falling, suggests Adrian Ash, the director of research at commodity marketplace BullionVault.