BNP Paribas shouts out: Gold can still rise! Targeting 2700 this year, aiming for 2800 next year!

According to analysts from BNP Paribas, gold stands out in the entire commodity sector, with gold now accounting for 100% of its commodity allocation.

In the latest commodity outlook report from the French bank, analysts pointed out, "Against the backdrop of easing US inflation and the potential convergence of fiscal costs regardless of who wins the US presidential election, gold has continued to rise since our analysts' last quarterly report. The question now is, where will gold go next?"

BNP Paribas analysts listed the " five major themes" they believe could drive developments in the gold market: geopolitics, the US dollar and interest rates, central bank purchases, investor flows, and fundamentals. However, they cautioned that while each of these drivers "is very favorable for the gold price," there is a "lack of clear overvaluation drivers."

They explained, "The Fed's policy reversal and its potential impact on rates and the dollar have been widely anticipated, and global geopolitical tensions have been present for some time. Fundamentals, geopolitics, rates and the dollar, and ongoing central bank purchases are all supporting further upside. However, potential catalysts remain dispersed.

In the 2024 fourth-quarter global asset allocation outlook report released on September 12, BNP Paribas indicated that in their bullish expectations for gold, they are following through: gold now accounts for 100% of its commodity holdings, 7% of its total asset allocation, a 40% increase compared to the previous period.

They wrote, "Apart from developed market equities, most asset classes have delivered single-digit returns year-to-date in 2024. In this scenario, BNP Paribas' multi-asset portfolio (SGMAP) continues to perform well, with strong returns and low volatility. Our focus on US equities, corporate credit, and gold allows SGMAP to absorb cyclical volatility."

BNP Paribas analysts stated that in an environment of falling commodity prices, the Fed's policy is more important to the market than the US election. "We are particularly concerned about oil prices, although they should help the anti-inflation process and assist the Fed in further easing, which would benefit bonds. Finally, steepening yield curves may be achieved in developed and emerging markets, while Japan may see a flattening of the yield curve due to the central bank's rate hikes."

They added, "The reversal of yen carry trades still has a long way to go, as this round of market leverage mainly comes from the yen, not from corporations or households, creating significant market risks."

They said, "We have further increased our yen exposure by 8 percentage points to 20% ( and reduced exposure to Japanese stocks to zero mainly based on volatility drivers). We have further reduced overall equity exposure by 5 percentage points to 42% and increased gold exposure by 2 percentage points to 7% — a result of sustained global central bank demand."

As for the broader commodity sector, BNP Paribas is pessimistic about oil and base metals, but remains optimistic about gold They wrote: "A significant feature is the soft demand for most commodities, leading to our commodity experts lowering their forecasts for base metal prices (by mid-2025: copper at $9,500, Brent crude oil at $67.5). We have reduced the exposure to cyclical commodities by 2 percentage points to zero. Meanwhile, we have increased the exposure to gold by 2 percentage points to 7%, as geopolitical issues will only further boost central bank demand for gold."

Analysts stated that "gold is the only thriving commodity, with huge long positions in the futures market and ETF funds flowing in, indicating that even as demand weakens for other commodities, the safe-haven demand for gold remains strong." They wrote:

"Global synchronized monetary easing cycles and non-Western central bank gold purchases are driving up the price of gold. We attribute this trend to two factors: increasing concerns about the sustainability of the US-centric global financial system and escalating concerns about sanctions. Global multipolarity and increasing public debt indicate that central banks will continue to buy gold in the long term, which means that gold prices will steadily rise in the long run when calculated in inflation-adjusted terms."

In their outlook report, they wrote: "Gold is our favorite asset in the commodity sector. Chinese investors drove the rise in gold from March to April and have become an increasingly important force in the gold market."

BNP Paribas currently forecasts that the average spot gold price in the fourth quarter of 2024 will be $2,700 per ounce, rising to $2,725 in the first quarter of 2025, and to $2,750 per ounce in the second quarter. They expect the average price of spot gold for the full year of 2025 to reach $2,800 per ounce."