Gold has outperformed the broader U.S. stock market this yr, and Wall Street is becoming more bullish on the dear metal because the U.S. Federal Reserve moves closer to cutting rates of interest.
Gold prices are up about 21% in 2024, while the S&P 500 is up 16%. On Friday, gold prices shot up as much as 2.2% to a brand new record high, surpassing $2,500 an oz.
While recession fears eased last week after a weak jobs report set off alarm bells, recent indicators point to weakness in key areas resembling housing that would justify a more drastic rate cut by the Fed.
The price of gold typically recovers when income-producing assets resembling bonds change into less attractive on account of the clouded outlook for long-term rates of interest.
In a press release on Friday, Commerzbank Research raised its gold forecast and predicted three Fed rate of interest cuts by the top of this yr and three more in the primary half of 2025. In total, that’s two more cuts than previously expected.
“We therefore expect the price of gold to rise further to $2,600 by the middle of next year,” wrote commodity analyst Carsten Fritsch. “By the end of 2025, the price of gold is likely to fall to $2,550 (previously $2,200) in view of the renewed rise in inflation and the associated speculation about interest rate hikes in the following year.”
Other analysts are much more optimistic. Bart Melek, global head of commodity strategy at TD Securities, told Bloomberg on Friday that gold prices could reach $2,700 an oz in the approaching quarters, citing prospects of Fed easing.
Patrick Yip, Senior Director of Business Development on the American Precious Metals Exchange, said: CBS Money Watch At the top of last month, it was said that the value of gold could reach the $3,000 mark as early as next yr if geopolitical uncertainty continues, rates of interest are cut or central banks world wide buy more.
In fact, central banks are one among the predominant sources of gold demand as countries like China, Turkey and India look to diversify their reserves away from the US dollar, especially because the West has seen dollar assets frozen following Russia’s invasion of Ukraine.
According to JPMorgan estimates, central banks bought over 1,000 tons of gold last yr. The People’s Bank of China went on a gold-buying spree for 18 months, the longest buying spree in its history, which led to May. And in June, the Indian central bank increased its gold reserves by the biggest amount in almost two years.
Meanwhile, fears persist of a possible recession, which might boost demand for safe-haven assets resembling gold and force the Fed to chop rates of interest even further.
“Black Swan” investor Mark Spitznagel, founder and CIO of the private hedge fund Universa Investments, said Assets that we face a recession this yr as the largest stock market bubble in history is about to burst.
“This time it is no different, and whoever says so has really not been paying attention,” he said, adding: “The only difference is that the bubble that is bursting is on an unprecedented scale.”
