• Gold price suffers from rate hikes
• Recent increase due to banking turmoil
• Julius Baer believes the rise in gold prices is unjustified
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Gold investors have had little reason to be happy in recent months: when the US Federal Reserve, in view of high inflation, monetary policy adapted and said goodbye to the low interest rate policy, the precious metal had to take a beating and the price of gold had even dropped to 1,622 US dollars in September 2022. The connection is clear: if interest rates rise, an investment in interest-based investments is much more worthwhile for investors – gold, which does not generate any income per se, is therefore one of the losers in an environment of high interest rates.
The fact that the gold price was nevertheless able to rise sharply in the past few weeks, although the international central banks pushed through further increases in key interest rates, was primarily due to the turbulence in bank stocks. The collapse of the crypto bank Silvergate and the problems at Silicon Valley Bank (SVB) and Signature Bank had unsettled investors, as did the turbulence surrounding First Republic Bank. In this country, the most obvious cause of a sensation was the takeover of Credit Suisse by UBS – the emergency merger was a direct result of the massive withdrawal of customer deposits at CS, reinforced by concerns about the banking crisis spreading to Europe.
The price of gold benefited from the events: at the beginning of March, a troy ounce of gold was still trading for around 1,800 US dollars on the market. The price is now significantly higher at around 1,969 US dollars (price on April 2nd, 2023).
Julius Baer warns that gold prices will rise too quickly
For the private bank Julius Baer, however, the current price level for gold is not justified. A strategy paper cited by Cash.ch shows that the bank’s own commodities expert has even lowered its investment rating for gold from “neutral” to “cautious”. This was justified by the fact that the price of gold had not only risen too quickly, but also too high. The 12-month price target was lowered to $1,725, well below current listings. According to the expert Cash.ch, for the next three months a drop to 1,850 US dollars is expected.
The expert also assumes that the central banks will not change course quickly – such a change would support the price of gold. In his opinion, the problems in the US banking sector are limited to a few regional banks, so he doesn’t think it likely that they will spread to the industry – which would force central banks to act.
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