Gold could rise to $2,600 an ounce after hitting a new record high, as traders increasingly expect the US Federal Reserve to cut interest rates next month.
On Sunday, spot gold broke through $2,500 an ounce for the first time, extending a rally that has seen the precious metal rise $613, or 32%, over the past 12 months. Analysts expect further gains over the next year, driven by expectations of a shift in U.S. monetary policy.
The possibility of lower interest rates is seen as bullish for gold, which has become more attractive compared to other asset classes such as bonds or stocks that typically yield returns. Swiss investment bank UBS has forecast gold prices could hit $2,600 an ounce by the end of 2024. The market is now closely watching a keynote speech by US Federal Reserve Chairman Jerome Powell at the annual Jackson Hole symposium on Friday, as any hint of an imminent rate cut could further boost gold.
Powell is expected to outline his economic outlook in his first public appearance since the recent turmoil in global stock markets, sparked by weaker-than-expected U.S. jobs data and growing concerns about a potential recession. According to Tom Price, a resources analyst at Panmure Liberum, the market is expecting Powell to signal a shift from an “inflation targeting” approach to a “growth management strategy.” That could mean keeping interest rates steady or cutting them slightly to support economic growth, especially given the recent pressure on the U.S. labor market.
Gold has only topped $2,000 an ounce once before, in the immediate aftermath of the Covid-19 pandemic in 2020. Investment bank RBC Capital has already raised its gold price forecast to $2,480 by the end of this year and $2,600 by mid-2024, and expects gold to remain above $2,000 an ounce until at least 2028.
Gold’s reputation as a “safe haven” has been boosted by ongoing conflicts involving Russia, Ukraine and the Middle East. Despite current high prices, analysts believe that any escalation in these conflicts, or rising tensions between China and Taiwan, could push gold prices higher. Additionally, the upcoming US presidential election could bring more volatility to the market, further increasing gold’s appeal.
China’s central bank has also played a significant role in the rally, having significantly increased 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 for China in at least 46 years, according to the World Gold Council. This large-scale buying program has been a major driver of gold’s upward momentum, reflecting broader global uncertainty.