Gold prices are expected to increase by 30%

That is the opinion of economist David Rosenberg - President of Rosenberg Research. According to the expert, the latest increase in gold prices is "particularly impressive".

“Gold prices have risen at a time when the dollar is strong and inflation expectations are falling. During that time, the Fed is expected to continue to keep interest rates high. All of these developments would normally hurt gold prices, but things are going against the grain,” he noted.

According to a study by a team of experts from Rosenberg Research , the reason for the high gold price is not on the supply side, as it has been stable in recent years. The reason lies on the demand side because central banks around the world consider gold as a reserve asset.

Now that China’s yuan has lost its status as the world’s second-largest reserve currency, countries like Japan, Russia, Türkiye and Poland are concerned about their over-reliance on the US dollar. As a result, gold is sought as a hedge against economic risks.

“After a period of divesting from gold due to the perception that physical reserves were obsolete, central banks are once again increasing their gold holdings on a large scale,” said Mr. Rosenberg.

Demand for gold has surged in emerging markets such as India and China, while Western investors have lagged behind as high interest rates and booming stock prices have reduced the appeal of the precious metal.

Additionally, the boom in the circuit manufacturing industry to cater to the artificial intelligence craze is said to be another factor driving gold prices.

Mr. Rosenberg assessed that the recent recovery in gold prices stems from global geopolitical risks and an unpredictable macroeconomic outlook.

On the monetary side, he analyzed: with the US debt-to-GDP ratio reaching 120% and service costs escalating, investors are increasing their holdings of gold amid the risk of a financial crisis.

As gold prices gain momentum, Mr. Rosenberg predicts, they could continue to rise another 15% — even 30% — to $3,000 an ounce as central banks begin to cut interest rates.

The economist gives two scenarios: one is a “soft landing” (avoiding a recession), the other is a typical bear market. Both scenarios are supportive for gold prices.

In a “soft landing” scenario, assuming global real interest rates return to their pre-2000 average, the US dollar would fall by about 12% and push gold prices up by about 10%.

But if a recession hits the world economy (with global real interest rates returning to their 2014-2024 average), coupled with a stable stock market and a dollar that depreciates by around 8%, gold prices could rise 15% into the $2,500/ounce range.

“The combination of valuation methods has helped us see that the downside risk to gold is low. Gold still has a lot of room to rise. It is more likely to hit $3,000 an ounce than fall back to $1,500 an ounce as geopolitical tensions continue to escalate,” he said.