J. Safra Sarasin Sustainable Asset Management (AM), the asset manager of the Swiss private bank J. Safra Sarasin, believes that the price of gold is already moving at levels close to its bottom and expects the precious metal to return to around $4,600 per ounce before the end of 2026.
In this regard, the firm's Currency Strategist, Claudio Wewel, has pointed out that net speculative positions on the safe-haven asset have become "more bullish" in recent weeks, despite the fact that the price of gold has hit new lows so far this year.
At the close of European stock markets for the day, the yellow metal was trading around $4,100, after having broken through the psychological threshold of $4,000 at the end of June and falling to $3,950 "greenbacks".
According to Wewel, "risk reversals -- which measure the balance between demand for downside protection and bets on upside -- have fallen to levels not seen in a decade, suggesting we may have reached peak pessimism. This indicates that it probably wouldn't take much for the trend to reverse, which should translate into a reversal of recent outflows from exchange-traded funds (ETFs). These elements lead us to believe that gold is probably not too far from its bottom."
Looking at the medium term, the investment house maintains its thesis that the structurally favorable environment for gold remains "intact." In its opinion, the continuation of geopolitical fragmentation will support "the long-term persistence of structural dollar depreciation."
J. Safra Sarasin AM also points out that the sustainability of sovereign debt levels will continue to be a "relevant" issue, although they admit that it is difficult to anticipate when markets will refocus on this front.
At the same time, Wewel believes that, in view of these long-term dynamics, central banks, large institutions, and private savers are likely to continue "increasing their medium-term allocations." Furthermore, he has warned that, although it is not making headlines now, concerns about the solidity of US institutions "can easily resurface" as the US midterm elections approach.
On the other hand, the expert has indicated that, with the latest inflation and activity data on the table, the entity expects the strength of the economic cycle to "continue", but they anticipate that the Federal Reserve (Fed) could raise the price of money up to two times in a year, which limits the options for gold to register a strong rebound in the short term.
NO SHORT-TERM REBOUND
"In our central scenario, the Fed should carry out two rate hikes during the next twelve months, with the risk that it may have to do more. With the market discounting one and a half rate hikes in the United States, it is unlikely that gold will register a sustained rebound in the short term," the strategist stressed.
Likewise, the Head of Foreign Exchange admitted that it would probably not take a very sharp deterioration in US indicators for expectations of rates in the United States and the dollar to be "somewhat lower".
In this context, the firm calculates that some weakness in the US dollar until the end of the year, along with somewhat lower real interest rates, will support gold. "According to our model, we believe that gold should recover towards $4,600 before the end of the year," Wewel predicted.
Although that level would imply an upside potential of more than 12% compared to current prices, the metal would still be about 18% below its all-time high, reached at the end of January, when it touched $5,595 per ounce.
However, Safra Sarasin estimates that the reactivation of the structural dollar depreciation operation, as the midterm elections in the United States approach, represents "an additional upside risk".