Analysts are increasingly pessimistic about the outlook for gold prices.
Gold prices recently fell to a four-month low of $1,677.9 U.S. per ounce. The precious metal was hovering around $1,740 U.S. per ounce in Asian trading Thursday (August 12), well off its highs earlier this year of $1,900 U.S. an ounce.
Analysts attribute the fall to a stronger-than-expected U.S. jobs report as well as a rush to buy the U.S. dollar in response.
Gold prices and the U.S. dollar have an inverse relationship. As the dollar gets stronger against other currencies, gold prices fall as it becomes more expensive in other currencies, driving down demand.
While gold has since recovered some losses, analysts say it is increasingly difficult to be bullish on gold given the hawkish stance of U.S. monetary policy.
The U.S. Federal Reserve is expected to dial back monetary easing and slow its stimulus efforts as the economy recovers from the pandemic. The U.S. central bank has held interest rates near zero, but officials have signaled that increases could happen soon, especially with inflation running hot.
Dominic Schnider, Chief Investment Officer at UBS Global Wealth Management, forecasts that real yields will "go less negative" and that means more downside for gold through the remainder of this year.
When real yields go up, gold prices go down. In such a scenario, the opportunity cost of holding gold, a non-yielding asset, is higher as investors are foregoing interest that would be otherwise earned in yielding assets.
Schnider forecasts that gold prices will fall to $1,700 U.S. per ounce by the start of 2022 and that gold could drop to $1,600 U.S. per ounce or lower. Other analyst reports are equally negative on the outlook for gold over the coming six months.
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