State Street Global Advisors: Five major themes support gold prices, expected to challenge $5,000 in the next 24 months

According to the Zhitong Finance APP, gold prices have performed strongly this year, and State Street Global Advisors holds an optimistic view on the mid-term trend of gold prices, believing that the outlook remains positive due to various strategic and structural factors. The firm expects the lower limit of gold prices this year to rise to a higher level, from the original USD 2,000 per ounce to USD 3,000. For the remainder of this year, the gold market is expected to transition to a volatility range above USD 3,000, with the potential to test USD 4,000 to USD 5,000 within the next 12 to 24 months.

State Street Global Advisors indicates that the upward movement of gold prices is supported by five major themes: (1) potential increase in inflows into gold ETFs; (2) an increase in consumers in China buying gold; (3) strong demand for gold from central banks; (4) rising demand for alternative currencies and global debt supporting the rise in gold prices; (5) the Federal Reserve is still expected to cut interest rates.

In addition, some strategic factors such as uncertainty in trade policies and risks of economic recession are also driving gold prices.

State Street Global Advisors states that under the baseline scenario, although high tariff rates, including those between China and the U.S., have decreased, the uncertainty in trade policies, coupled with geopolitical tensions, will continue to dominate for the remainder of this year, while inflationary pressures remain, limiting the Federal Reserve's room to cut interest rates.

The firm believes that in a bull market scenario, if trade and tariff tensions escalate, and there is a significant shift in the geopolitical economic order, exacerbating stagflation risks in the U.S. and globally, the inflow of funds into U.S. sovereign assets will decrease. At the same time, retail demand for gold in China becomes stronger in a risk-averse environment, and central banks also increase their demand for gold. The speed of inflows into gold ETFs is comparable to that of 2009 and 2020, which could drive gold prices up to USD 3,500 to USD 3,900.

As for the bear market scenario, if U.S.-China geopolitical relations become increasingly relaxed and a semi-permanent solution is reached, market preference for the dollar returns, with expectations of stronger U.S. economic growth compared to abroad, while demand from China, central banks, and gold ETFs is weaker than expected. Therefore, gold prices may fall below USD 3,000, but around USD 2,000 may attract strategic gold buyers to enter the market.