Price prediction hooey

There's only one thing more snake-oily than a banker's promise, and that's gold price predictions from an array of well-paid bank analysts.

In June this year gold price forecasts from J.P. Morgan were an "average $3,675/oz by the final quarter of 2025, rising toward $4,000/oz by the second quarter of 2026." The analyst - who at J.P. Morgan is on an average salary around $91,000 - forecast on 10 June that the gold price would be $4,250 by the final quarter of next year.

They're not alone. Deutsche Bank predicted $3,139 by the end of this year; HSBC $3,215; UBS $3,800. Traders at CME Group, which likes to remind its website readers that it's the world's leading derivatives marketplace, decided $3,630 was the mark. The twenty or so analysts asked by the London Bullion Market Association (LBMA) in January this year gave an average $2,735.33/oz estimate but in July another poll kicked that up to $3,159. A survey by Reuters in April of 29 analysts and traders gave an average price forecast of $3,065 for 2025, and $3,000 for 2026.

An impossible task

Accurately assessing the future gold price is like stepping into a flowing river - so many variables are going past you can never have certainty about the future.

Gold is a commodity but confusingly doesn't behave like one. Cocoa prices for example have risen recently mostly because harvests have been poor - supply has dropped. The same is true for coffee. When demand soars, supply needs to keep up or the price goes higher. The electric car revolution is pushing up demand for copper. Its price has gone higher, and speculators have taken advantage of that trend and pushed the price even higher.

The gold price is pushed by supply/demand factors but also responds to pressures distant from mine supply and physical demand from jewelry. The gold price can be pushed around by geopolitical uncertainty and financial market volatility. And because it is widely regarded as quasi money, what happens to fiat currencies - the Dollar particularly - can move the gold price.

And because gold is regarded as an investment asset, the price is closely connected to interest rates, the US ones especially as the dominant gold price is that of the US Dollar. Gold pays no yield, so when US interest rates are high, investment interest in gold declines; when interest rates are low, investment in gold picks up.

What might replace the Dollar?

One unusual factor now at play in the gold price outlook is the decline in the prized status of the Dollar. The US currency has been the international reserve for more than 100 years. It's the currency used in most international trade, the currency that facilitates smoother cross-border transactions. For that reason most countries have liked to hold Dollars or US Treasury bonds (priced in Dollars of course) as a large part of their foreign reserves. The Treasury bonds have widely been held to be some of the safest investments available.

But that may be coming to an end. China clearly wants to see the end of US hegemony. American domination, in both military and economic terms, is being challenged - slowly, slowly, by China. But until China allows free convertibility of its fiat currency the Dollar's position may well be secure. China needs to relinquish its capital controls, in order to permit foreigners to hold large volumes of its assets. Without that, China's fiat currency can't depose the Dollar.

For now, the Dollar is safe. But for how long? That's one reason the gold price has jumped more than 50% this year. Until the picture is clearer, there's no obvious reason the bull run is finished.

For UK clients: At Glint, we make every effort to demonstrate a balanced conversation between gold, silver, crypto and fiat currencies when it comes to purchasing power and, while we strongly believe that gold is the fairest and most reliable currency on the planet, we need to point out that it isn’t 100% risk free. While we have seen a steady increase over time, the value of gold can fall, which means that its purchasing power can also decline.

For US clients: Graphic representations of value are for illustrative purposes only. The Glint debt card is issued by Sutton Bank, member FDIC. The sale, purchase and storage of precious metals are offered by Glint and not Sutton Bank. Your investment in precious metals through Glint is

·        Not insured by the FDIC.

·        Not a deposit or other obligation of, or guaranteed by, Sutton Bank.

·        Subject to investment risks, including the possible risk of loss of the principal amount invested.

All investments involve risk, including possible loss of principal. The value of precious metals is affected by many economic factors, including but not limited to the current market price, demand, perceived scarcity, and quality of the precious metal. Precious metals can increase or decrease in value. Past performance is not a guarantee of future results. As such, investing in precious metals may not be suitable for everyone.