Gold Price Forecast: Risk-reward favourable for XAU/USD leading up to August – DBS Bank

Gold prices went on a roller coaster ride in the first half of the year as uncertainties over the Federal Reserve reigned. Strategists at DBS Bank look beyond gold’s near-term volatility and recommend including the yellow metal as a risk diversifier in portfolio.

See – Gold Price Forecast: Rising prices should see investors turn to XAU/USD as a hedge – ANZ

Gold performs well when bond yields stay low

“At the current prices, we believe the risk-reward is favourable as gold prices trade toward our year-end target price of $2,000 per ounce. Based on our quantitative model, gold price fair value should be around $1,910-2,048 when US 10Y bond yields are around 1.4-1.8% and the US Dollar Index (DXY) around 90- 95.”

“We believe the ride is going to be bumpy leading up to August before the Jackson Hole symposium when Fed chairman Jerome Powell will testify on the state of the US economy and outlook on monetary policies; there will be more clarity then.”

“Investors should look beyond this near-term volatility and continue to include gold as a risk diversifier in their portfolio. Its inverse correlation with bond yields, USD, and real rates, and positive correlation with stock market volatility render it an effective insurance against the vulnerability of fiat currencies with unlimited quantitative easing printing and macro uncertainties.” 

“Central banks around the world are demanding gold as an alternative to USD, and with interest rates at such low levels, the opportunity costs of holding gold are almost non-existent.”