Record Highs for Gold – Gold prices are hovering near all-time highs on Thursday.
This rise is fueled by the Federal Reserve’s aggressive 50 basis point rate cut and a weakening US dollar. Analysts expect even higher valuations for the precious metal soon.
After the rate reduction announcement, gold futures surged above $2,600, setting new records. Market observers attribute this price surge to the substantial cut, which is expected to sustain higher gold prices amidst a declining dollar.
Weak Dollar Boosts Gold’s Affordability
The US dollar index (DX-Y.NYB), which measures the greenback against a basket of currencies, remained above the 100 level on Thursday. However, it has been trending downward since June. A weaker dollar enhances gold’s appeal to international buyers, making it more affordable in other currencies.
Alex Ebkarian, COO and co-founder of precious metals dealer Allegiance Gold, noted that the rate cut “risks a second wave of inflation and a further weakening of the dollar.” This situation could lead to increased demand for gold.
Reduced Rates Increase Gold’s Attractiveness
Gold, priced in US dollars, becomes more appealing to investors as interest rates decline. Gold does not offer an annual yield, so lower rates make it more competitive against yield-bearing assets.
Record Highs for Gold – Goldman Sachs Predicts Further Price Gains
Goldman Sachs analysts predict higher gold prices in the near future. They forecast that capital flows into gold-backed exchange-traded funds (ETFs) typically rise during Fed rate-cutting cycles.
“We expect a gradual boost to ETF holdings—and thus gold prices—from the Fed’s easing cycle,” they wrote.
The firm projects a price target of $2,700 by early 2025. This forecast is based on increased Western capital flows into ETFs, continued hoarding by central banks, and investor demand for a hedge against geopolitical risks and recession concerns.
Historical Correlation Between Fed Cuts and Gold Prices
Historical data shows a strong correlation between Fed rate cuts and significant increases in gold prices. Similar instances occurred during the 2008 financial crisis and the 2020 pandemic.
Gold has surged approximately 25% year-to-date, partly driven by record-breaking purchases of the precious metal by central banks.
Record Highs for Gold – Analyst Commentary
Ines Ferre, a senior business reporter, commented on the recent gold rally: “The Fed’s unexpected aggressive rate cut is a clear signal of economic challenges ahead, and investors are flocking to gold as a safe haven.”
Source – Yahoo Finance
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