By Neils Christensen, Kitco News
(Kitco News) - Gold prices continue to establish new all-time highs, pushing above $2,500 an ounce late Wednesday, but some analysts say the metal is fully priced in over the medium term.
Growing expectations that the Federal Reserve is preparing to cut interest rates in September have provided the precious metal with new momentum. While prices remain in an upward trend, one investment firm is warning investors that markets will be volatile.
In the latest report, commodity analysts at WisdomTree ran a price model and warned that gold is overvalued by 7%. The analysts stated that although the Federal Reserve is expected to ease interest rates by the end of the quarter, the strength of the U.S. dollar remains resilient, presenting a headwind for the precious metal.
“The U.S. Federal Reserve (Fed) fund futures are fully pricing in a September 2024 rate cut for the U.S., and the market consensus is that there will be 100 bps of cuts over the coming year. However, with the European Central Bank and several other developed world central banks having already initiated their rate-cutting cycles, the U.S. dollar remains firm, presenting a headwind for gold in dollar terms. Thus, in yen and euro terms, the metal is trading even higher,” the analysts stated in the report.
Although WisdomTree sees some risks to gold in the near term, the firm remains extremely bullish over the next 12 months. In its long-term forecast, the analysts predict that gold prices will rally to $2,585 an ounce by the second quarter of 2025.
“Gold is a highly sought-after asset in times of economic, financial, and geopolitical stress, and these triggers could drive sentiment towards the metal even higher,” the analysts said in their base case scenario.
Meanwhile, if inflation remains stubbornly elevated as the Federal Reserve cuts rates, gold prices could rise to $2,970 an ounce, the analysts noted.
On the downside, if the Federal Reserve remains reluctant to ease interest rates this year. WisdomTree sees gold prices falling back to $1,950 an ounce within the next 12 months before recovering to current levels.
Although gold garners much of the attention, WisdomTree expects silver to continue outperforming other precious metals in 2025. They observed that despite the volatility, silver has outperformed gold this year, rising more than 22%, while gold prices have increased by 13%.
“We expect gold prices to continue to cool over the coming quarter before a rebound, and silver will follow suit,” the analysts said.
“However, there is an upside risk for silver, as it could break its bounds with gold. We believe that silver will outpace gold, gaining 15.8% over the coming year compared to 11.1% for gold,” the analysts added in the report. “Our models indicate that for every 1% increase in gold prices, silver has historically risen 1.4%. In line with gold, silver could give back some of its gains before rising, as both metals are in a waiting pattern for Federal Reserve rate cuts.”
While silver will benefit from the Federal Reserve’s easing cycle, WisdomTree is closely monitoring the supply and demand imbalance in the white metals market.
They noted that growing industrial demand and declining supply will support prices through the first half of 2025.
“Silver supply is tight, and the demand cases for the metal are widening. Silver has been in a supply deficit every year since 2021, and we expect demand to outstrip supply by a similar magnitude in 2024 as we saw in 2023,” the analysts said. “Industrial demand for silver has been scaling new highs, driven by photovoltaic demand and increasing use of silver in 5G and car electronics.”
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