Gold prices have recently broken the $2,500 per ounce barrier, marking a significant milestone. Analysts attribute this surge to potential changes in US monetary policy, predicting further growth in gold prices.
The market’s attention is now focused on key economic indicators and statements from the US Federal Reserve. These factors could drive gold prices even higher over the next year.
Rally Breaks Records
On Sunday, the spot price of gold broke through the $2,500 per ounce barrier for the first time. This extension of the rally has seen the precious metal gain $613, or 32%, over the past 12 months. Analysts forecast further increases driven by expectations of a shift in US monetary policy.
The potential for lower interest rates is seen as a bullish factor for gold. It becomes more attractive compared to other asset classes such as bonds or equities that typically yield returns. UBS projects gold prices could reach $2,600 an ounce by the end of 2024.
Federal Reserve’s Role
The market is closely watching a key speech by Jerome Powell, chairman of the US Federal Reserve, at the annual Jackson Hole symposium. Any hint of an imminent rate cut could further fuel gold’s rise.
Powell is expected to outline his economic outlook in his first public appearance since recent stock market turbulence. This was triggered by weaker-than-expected US jobs data and mounting concerns over a possible recession.
Market Expectations
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.
Investment Bank Predictions
RBC Capital has raised its gold price forecast to $2,480 by the end of this year and $2,600 by mid-2024. They predict gold will stay above $2,000 an ounce until at least 2028.
Gold’s reputation as a “safe haven” asset has been bolstered by ongoing conflicts involving Russia, Ukraine, and the Middle East. Despite high prices, any escalation in these conflicts or rising tensions between China and Taiwan could push prices even higher.
Global Factors Influencing Gold
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. They aggressively increased their physical gold reserves over the past two years as part of a strategy to diversify 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.
China’s Impact
This large-scale buying programme has driven gold’s upward momentum, reflecting broader global uncertainties.
According to the World Gold Council, these purchases are the highest by China in at least 46 years.
Conclusion
As the Federal Reserve contemplates a shift in monetary policy, gold prices are set to potentially reach new heights.
Global uncertainties and strategic buying by major economic players like China further underscore gold’s enduring appeal as a safe haven asset.
As the Federal Reserve contemplates a shift in monetary policy, gold prices are set to potentially reach new heights. Global uncertainties and strategic buying by major economic players like China further underscore gold’s enduring appeal as a safe haven asset.
