KUALA LUMPUR: Gold prices are expected to recover next year as central banks approach the end of their interest rate hikes, making the precious metal more attractive to investors.
HSBC Asia FX Research head Joey Chew said gold had underperformed expectations this year despite heightened geopolitical tensions, as rising oil prices fuelled inflation concerns and raised expectations of further interest rate increases.
She said the relationship between gold and oil prices had shifted from positive to negative, with higher oil prices increasingly weighing on gold as markets anticipated tighter monetary policies.
“We actually have a situation whereby gold went from being positively correlated with oil prices to being negatively correlated with oil prices,” she said at HSBC’s foreign exchange investment outlook.
“When central banks start thinking about raising interest rates because of high oil prices because of inflation, therefore gold has lost out.”
Chew said gold’s lack of yield made it less attractive when interest rates rose, as investors could instead earn returns from interest-bearing assets.
However, she said the outlook could improve next year as central banks were expected to complete much of their anticipated monetary tightening by the end of this year.
“To the extent that we do expect a lot of the central banks to raise rates and sort of get a lot of the rate increases out of the way by the end of this year, the next year we’ll just sort of hold their rates at a high level but no longer keep raising rates.
“That’s when we expect gold to come back next year,” Chew said.