Gold prices have reached unprecedented highs, benefiting investors but straining consumers. However, a US-based analyst predicts a steep decline. A Morningstar analyst based in the United States predicts a 38% drop over the next several years.
In Indian markets, a gram of 24-carat gold costs about Rs 90,000, while worldwide, it costs over $3,100. In India, it could drop to about Rs 55,000 per 10 grams if it drops by almost 40%. U.S. strategist John Mills of Morningstar predicts that gold prices will plummet from the current $3,080 per ounce to $1,820 per ounce.
Factors Influencing a Potential Price Drop
Concerns about inflation, geopolitical unrest, and economic uncertainty all contributed to the recent spike in gold prices. Gold became a haven for investors, particularly during the administration of former US President Donald Trump, when ongoing trade disputes flared up. However, multiple factors may now drive prices downward:
Increased Supply: Gold production has increased significantly, with mining profits reaching $950 per ounce in the second quarter of 2024. Global reserves have increased by 9% to 2,16,265 tonnes, as Australia ramps up production and recycled gold supply grows.
Declining Demand: Central banks, which bought 1,045 tonnes of gold last year, may reduce purchases. A World Gold Council survey found that 71% of central banks intend to reduce or maintain their gold holdings.
Market Saturation: Mergers and acquisitions in the gold sector rose by 32% in 2024, indicating a peak market. Furthermore, the surge in gold-backed ETFs is consistent with patterns seen prior to previous price corrections.
BoFA, Goldman Sachs Expect Price Surge
Despite Mills' forecast, some major financial institutions are optimistic. While Goldman Sachs anticipates a year-end price of $3,300 per ounce, Bank of America projects that gold will reach $3,500 per ounce within the next two years. The coming months will determine whether gold maintains its momentum or suffers the anticipated decline.
