Price of gold could hit $2,600 an ounce as US rate cut expected
The price of gold could reach $2,600 an ounce after setting a new record as traders raised their bets that the US Federal Reserve will start cutting interest rates next month.
Analysts have forecast a further rise in the price of the metal over the next 12 months in anticipation of a loosening in monetary policy by the world’s largest central bank.
Lower interest rates are seen as a positive for the price of gold, increasing its relative appeal compared with asset classes such as bonds or equities that typically offer investors a yield.
The spot gold price broke through $2,500 per ounce on Sunday for the first time, extending a rally in price, which has risen by $613, or 32 per cent, over the past 12 months.
Analysts at UBS, the Swiss investment bank, said that prices could reach $2,600 an ounce by the end of 2024, with “all eyes” on a speech by Jerome Powell, the chairman of the US Federal Reserve, at the meeting of central bankers at Jackson Hole in the United States on Friday, looking for “any indication of an imminent rate cut”.
Powell will set out his view on the outlook for the American economy when he speaks at the two-day symposium. It will be the first time that the central bank chief has spoken publicly since the turmoil that engulfed global stock markets this month, sparked by weak US jobs figures and fears of an imminent recession.
The market expects Powell to signal a switch in monetary policy from “inflation targeting” to “a growth management strategy”, according to Tom Price, a resources analyst at Panmure Liberum, the broker. “That implies that he’ll either hold rates or bring them down a little bit just to support growth. The thing that he’s focused on at the moment is the fact that the US labour market has come under a bit of pressure in the last few weeks.”
The price of gold has risen above $2,000 an ounce only once before, in the immediate aftermath of Covid in 2020.
RBC Capital, the investment bank, had already raised its price forecast by $405 to $2,480 for the end of this year and by $460 to $2,600 by the middle of next year, anticipating that gold will remain above $2,000 an ounce until at least 2028.
Gold, considered a “safe haven” asset, has been buoyed further by wars involving Russia and Ukraine and in the Middle East. “It’s hard to build a compelling bull case when the price is already at record highs,” Price said. However, an escalation in either conflict could push the price of gold higher, as could rising tension between China and Taiwan or a shock relating to the outcome of the presidential election in the United States.
The Chinese central bank has been aggressively building its physical gold position over the past two years in an attempt to diversify its reserves funds, adding more fuel to the rally. “That’s an important driver of gold, just because of the sheer size of the buying programme,” Price said.
The People’s Bank of China was the world’s largest single buyer of gold in 2023, with net purchases of 7.23 million ounces, the most by China for at least 46 years, according to the World Gold Council.
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