Widespread expectations for a sharp rate cut from the Federal Reserve this week have supported gold prices, which are hovering near recent highs above $2,500 an ounce. Ahead of the upcoming rate cut by the Federal Reserve, yet another bank is predicting further gains for gold.
ANZ commodity strategist Soni Kumari and senior commodity strategist Daniel Hynes said in their latest report on gold that as the Federal Reserve prepares to cut interest rates, the metal's technical break above $2,550 an ounce should continue to attract the attention of bullish investors.
Analysts expect gold prices to rise to $2,900 an ounce by the end of next year, helped by a recovery in investment demand, which had been a disappointing supportive force in the first half of 2024.
“Lower real interest rates and a weaker dollar are likely to strengthen their inverse relationship with gold in the upcoming easing cycle. This will boost investment demand as the opportunity cost of holding gold declines. We expect strategic investments in gold to revive, driving prices higher,” the analysts said.
The comments come as markets expect the Federal Reserve to make a big rate cut on Thursday. According to CME Group's FedWatch tool, markets are pricing in a 65% chance of a 50 basis point rate cut. However, many analysts note that those expectations may be too aggressive, with most economists predicting a 25 basis point cut and expecting further rate cuts in 2025.
Kumari and Hynes stressed that investors should focus on the overall direction of interest rates rather than a single rate cut. They noted that "a 100 basis point rate cut could lead to an increase of 200-250 tons of gold holdings in gold exchange-traded funds (ETFs) in the coming months, and the expected 200 basis point rate cut in this cycle has the potential to increase inflows by 500 tons."
Aside from the upcoming rate cuts, ANZ remains optimistic on gold as central banks continue to increase their exposure to the metal. Analysts said they do not expect higher prices to stop central banks from buying. “We have revised up our estimates for central bank purchases to 950 tonnes in 2024 and 850 tonnes in 2025,” they said. “While these amounts are lower than in the past two years, they are still relatively high.”
However, ANZ also reminded investors that the gold market may be volatile in the short term.
“While strategic investor exposure to ETFs could serve as a structural driver of gold prices, speculative positioning looks stretched, with shorts almost covered and longs close to 2020 levels. Crowded positioning could act as a headwind for gold prices in the near term,” they explained.
Despite these short-term risks, the strategists noted that gold still maintains strong momentum. The analysts concluded:
“As long as the price of gold remains above $2,550 per ounce, we expect the price of gold to rise to $2,640-2,650 per ounce in the short term. However, if the price of gold falls below $2,540 per ounce, it will indicate that the breakout was a false breakout. In this case, profit-taking may trigger a technical sell-off and the price of gold may fall back to the next support level of $2,460 per ounce.”
Article forwarded from: Jinshi Data
