Gold prices could fall, but the downside is limited as the U.S. economy deteriorates - RBC

NEW YORK (April 3) The gold market continues to experience increased volatility as investors react to President Donald Trump’s global import tariffs. While gold prices may still move lower, one Canadian bank sees limited downside risks.

Last week, ahead of Trump’s tariff announcement, commodity analysts at RBC Capital Markets raised their gold price forecast, now expecting prices to average $3,039 per ounce this year and $3,195 per ounce next year.

While RBC sees solid upside potential for gold, they also note that momentum in the marketplace is overstretched. In this environment, the analysts said they see the potential for prices to test support around $2,821 per ounce.

“Gold still looks overvalued from a macro perspective, and the uncertainties that have propelled gold are inherently uncertain,” the analysts said. “While we are still not ruling out the possibility of a correction from uncertainty-driven highs, it’s clear that economic sentiment has deteriorated, and gold’s appeal is more durable in this environment—meaning elevated prices should hold.”

So far, gold prices have managed to hold initial support at $3,050 per ounce. Spot gold last traded at $3,106.30 per ounce, down nearly 1% on the day.

Although gold prices continue to hover near their recent all-time highs above $3,100 per ounce, RBC said that the precious metal may need a new catalyst to reach further highs.

“We think a further leg higher relies on soft data weakness turning into hard data weakness. This would drive a more aggressive investor-led push higher in prices toward our high,” the analysts said.

Sentiment indicators show investors are extremely fearful. Polymarket, the world's largest prediction platform, shows consumers see a 47% chance of a recession this year. In its latest economic projections, the Atlanta Federal Reserve expects the U.S. economy to contract by 2.8% in the first quarter.

Meanwhile, consumer inflation expectations remain elevated, raising concerns about stagflation. Last week, the U.S. Conference Board reported that consumers expect inflation to rise to 6.2% over the next 12 months, up from the previous month’s estimate of 5.8%.

So far, ‘hard’ economic data has shown continued resilience and a relatively healthy labor market. The analysts said that deterioration in the real economy would force the Federal Reserve to abandon its neutral stance and cut rates, sparking a new rally in gold.

RBC expects that an economic contraction will drive safe-haven demand for gold as investors hedge against declines in equity markets. However, the analysts said that a consolidation would help attract new investment capital.

“This is based on our conversations with investors who, while largely favorable toward gold, may or may not feel underinvested in it but are hesitant to add exposure at all-time highs,” they wrote. “These flows would help stabilize gold on the downside if a period of consolidation were to materialize.”

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