Gold has performed better than the broader U.S. stock market this year, and Wall Street is becoming more positive about the precious metal as the Federal Reserve moves closer to rate cuts. On Friday, gold surged as much as 2.2% to a new record high, surpassing $2,500 per ounce.
Market Indicators and Predictions
Although concerns about a recession have eased in the past week after a weak payroll report, recent indicators have suggested weaknesses in crucial areas such as homebuilding, which may warrant more aggressive Fed rate cuts. Generally, gold rallies when assets that pay a yield, such as bonds, become less appealing as long-term rates’ prospects dim.
In a note on Friday, Commerzbank Research raised its gold forecast, anticipating three Fed rate cuts by the end of this year and three more in the first half of 2025. This is two more cuts than previously expected. “Accordingly, we expect the gold price to rise further to $2,600 by the middle of next year,” wrote senior commodity analyst Carsten Fritsch. “At the end of 2025, the gold price is likely to fall to $2,550 (previously $2,200) given the renewed rise in inflation and the associated speculation of interest rate hikes in the following year.”
Analyst Opinions
Other analysts are even more optimistic. Bart Melek, global head of commodity strategy at TD Securities, told Bloomberg on Friday that gold could reach $2,700 per ounce in the coming quarters, citing prospects for Fed easing. Meanwhile, Patrick Yip, senior director of business development at American Precious Metals Exchange, told CBS Money Watch late last month that gold could reach $3,000 as soon as next year if there’s continued geopolitical uncertainty, rate cuts, or increased buying from global central banks.
Central Bank Activity
Central banks have been a major source of gold demand, as countries like China, Turkey, and India seek to diversify their reserves away from the U.S. dollar, especially after witnessing the West freeze Russia’s dollar assets following its Ukraine invasion. According to JPMorgan’s estimates, central banks bought over 1,000 metric tons of gold last year. The People’s Bank of China went on an 18-month buying spree, its longest-ever run of purchases, which finally ended in May. In June, India’s central bank increased its gold reserves by the most in almost two years.
Meanwhile, fears persist about a potential recession, which would drive demand for safe-haven assets like gold and prompt the Fed to make deeper rate cuts. “Black Swan” investor Mark Spitznagel, founder and CIO of the private hedge fund Universa Investments informed Fortune that an imminent recession is likely this year due to the impending burst of the largest market bubble in history. “It’s not different this time, and anybody who says it is isn’t paying attention,” he said, adding “The only difference is the magnitude of this bubble that’s popping is bigger than we’ve ever seen.”
Analysts See Prices at $3,000
Gold prices are soaring to new highs, and analysts expect further records. Some experts anticipate the price of gold could reach $3,000 per ounce next year, especially with the upcoming U.S. Federal Reserve meeting.
Current Gold Prices
Currently, spot gold is holding steady at last session’s record high of $2,508.14 per ounce, according to data from FactSet. Meanwhile, U.S. gold futures jumped 0.16% to set a new record of $2,540.8 per ounce during Monday’s Asia hours, extending gains from Friday. Sabrin Chowdhury, head of commodities analysis at BMI, mentioned that gold is expected to reach multiple highs in 2024 due to its appeal as a Safe Haven asset, especially during times of uncertainty such as elections, Ukraine’s recent incursion back into Russia, and growing Middle East tensions.
Geopolitical Tensions and Market Reactions
A direct conflict between Israel and Iran seems likely following Iran’s vow to retaliate after the assassination of Hamas political leader Ismail Haniyeh in Tehran earlier this month. Israel has placed its military on high alert, and the U.S. sent a carrier strike group and guided missile submarine to the region to support its ally’s defense.
Another driving factor for bullion prices is the increasing chances of a Fed rate cut in September. This expectation has bolstered investor confidence that a rate cut next month is a possibility. Many analysts believe that once the Fed starts to cut rates, likely next month, gold could reach $2,700 an ounce.
Economic Implications
Gold becomes more attractive when interest rates are low because purchasing gold is less expensive than purchasing interest-bearing assets like Treasurys. Additionally, a decline in interest rates may weaken the dollar, increasing the allure of gold to holders of other currencies. Citi analysts noted that gold investor sentiment looks set for the upside in the three to six-month window. They also anticipate a $3,000 per ounce target by the middle of 2025, with a fourth-quarter average price forecast of $2,550 per ounce.
Upcoming Events
Traders will keep an eye on the annual economic policy symposium in Jackson Hole this week. The event could clarify the interest rate outlook as Fed Chair Jerome Powell is set to speak at the gathering.
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