(Kitco News) - Although gold has corrected sharply from its record highs above $5,500 an ounce, one precious metals analyst says the pullback has done little to alter the market's long-term bullish fundamentals, maintaining that prices can still end the year around $4,600 an ounce.
In an interview with Kitco News, Bernard Dahdah, Precious Metals Analyst at Natixis, said he has deliberately resisted the temptation to chase market swings, leaving his year-end forecast unchanged even as gold has retreated to around $4,100 an ounce.
"My forecast for the end of the year is $4,600," Dahdah said. "When we were at $5,500, people were asking why I hadn't raised my forecast. It would make me a pretty poor analyst if I just changed my view every time the wind changed."
According to Dahdah, the next leg of gold's bull market will be driven less by speculative investment demand and more by renewed buying from the official sector as central banks rebuild their reserves following months of disruptions caused by the conflict between Iran and the United States.
He noted that many central banks were forced to either sell or monetize portions of their gold reserves during the energy crisis to support domestic currencies as oil prices surged. With the conflict now appearing to have moved into a less acute phase and energy markets stabilizing, he expects those institutions to return to the market.
"Now that this war is behind us—in principle—I think central banks will have record months of gold purchases."
However, Dahdah stopped short of forecasting a record year for official-sector buying because of weak demand during the first quarter. Looking to the second half of the year, he said monthly purchases could surprise to the upside as reserve managers once again focus on diversification.
A key part of that thesis is his belief that the geopolitical landscape has permanently altered how reserve managers view U.S. assets.
"I wouldn't be surprised to see record months because the U.S. has lost its image as a guarantor of international stability," he said.
Dahdah argued that the shift is less about America's military strength and more about confidence in its role as the stabilizing force behind the global financial system.
"The image has changed," he said, adding that countries holding large U.S. dollar reserves may increasingly question whether those assets provide the same level of security they once did.
That changing perception, he said, will continue to reinforce central banks' long-term shift toward gold. He added that the recent crisis also demonstrated that gold reserves are more than simply a passive store of wealth.
Rather than permanently liquidating bullion, some central banks were able to monetize their holdings through swap arrangements, allowing them to access liquidity while retaining long-term ownership of their gold.
"It's not just an asset that you have to give away in a fire sale. A swap is a reasonable way to monetize your gold if you're a responsible country."
At the same time, Dahdah expects Chinese demand to remain another important pillar supporting prices. While he does not anticipate a dramatic surge in consumption, he believes steady buying from China, combined with renewed official-sector demand, will continue to establish progressively higher price floors.
"I think with the way central banks are consistently adding gold, it's just putting a floor under the market," he said. "It's the marginal incremental increase that creates those higher floors."
