The price of gold could soar to $2,600 an ounce after reaching a new record, as traders increasingly anticipate that the US Federal Reserve will cut interest rates next month.
On Sunday, the spot price of gold broke through the $2,500 per ounce barrier for the first time, extending a rally that has seen the precious metal gain $613, or 32%, over the past 12 months. Analysts are forecasting further increases over the next year, driven by expectations of a shift in US monetary policy.
The potential for lower interest rates is seen as a bullish factor for gold, which becomes more attractive compared to other asset classes such as bonds or equities that typically yield returns. UBS, the Swiss investment bank, has projected that gold prices could reach $2,600 an ounce by the end of 2024. The market is now closely watching a key speech by Jerome Powell, chairman of the US Federal Reserve, at the annual Jackson Hole symposium on Friday, where any hint of an imminent rate cut could further fuel gold’s rise.
Powell is expected to outline his economic outlook in what will be his first public appearance since the recent turbulence in global stock markets, triggered by weaker-than-expected US jobs data and mounting concerns over a possible recession. According to Tom Price, a resources analyst at Panmure Liberum, the market expects Powell to signal a shift from an “inflation targeting” approach to a “growth management strategy.” This could mean holding rates steady or slightly reducing them to support economic growth, especially in light of recent pressure on the US labour market.
The price of gold has only surpassed $2,000 an ounce once before, in the immediate aftermath of the Covid-19 pandemic in 2020. RBC Capital, another investment bank, has already raised its gold price forecast to $2,480 by the end of this year and $2,600 by mid-2024, predicting that gold will stay above $2,000 an ounce until at least 2028.
Gold’s reputation as a “safe haven” asset has been further bolstered by ongoing conflicts involving Russia, Ukraine, and the Middle East. Despite the current high prices, analysts believe that any escalation in these conflicts, or rising tensions between China and Taiwan, could push gold prices even higher. Additionally, the upcoming US presidential election could introduce further market volatility, adding to gold’s appeal.
The Chinese central bank has also played a significant role in the rally, aggressively increasing its physical gold reserves over the past two years as part of a strategy to diversify its holdings. 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 highest by China in at least 46 years, according to the World Gold Council. This large-scale buying programme has been a key driver in gold’s upward momentum, reflecting the broader global uncertainties.
