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Gold Rush Driven by Rate Cut Prospects
Over the past week, the spot price of gold on the COMEX exchange surpassed the $2480 per ounce mark, setting a new all-time high. The September interest rate cut by the US Federal Reserve is already almost 100% counted on, according to the CME FedWatch tool. Such a prospect usually has a positive impact on the price of gold and other precious metals. The value of the yellow metal fell below $2420 per ounce in Friday's Asian trading. This drop was partly due to investors taking profits on their long positions, but it was also influenced by the dollar's strength, which was boosted by strong U.S. economic data, particularly from the manufacturing sector.
Source: comexlive.org
Gold ETFs Report Losses
In the first half of 2024, gold-backed ETFs (Exchange-Traded Funds) experienced their worst six-month losses in over a decade, amounting to $6.77 billion. Asia was the only region to see inflows into gold, with total value of $31 billion coming in. Conversely, North America and Europe faced significant outflows totalling $9.8 billion. Total gold holdings in ETFs decreased by 120 tonnes to 3,105 tonnes, down sharply from the October 2020 peak of 3,915 tonnes. However, the total value of assets in gold ETFs rose by 8.8% this year due to the increase in gold prices. According to the World Gold Council, gold-backed ETFs saw an inflow of $1.4 billion in June, with all regions except North America experiencing gains. Total assets of these funds remained at $233 billion.
Central Banks Continue to Expand Gold Reserves
By the end of 2023, central banks around the world accumulated around 37,000 tonnes of gold, representing 16.7% of their overall foreign exchange reserves. Portugal, the United States, Germany, Italy and France were the countries with the largest gold reserves. In contrast, emerging markets like Russia and China, are rapidly expanding their gold reserves, according to strategists, what is part a wider strategy of their central banks to diversify and decrease their reliance on major global currencies. In addition, central banks in emerging markets often intervene in foreign exchange markets when their currency gain in value against the dollar. Purchases by central banks, especially from China, have been major drivers of gold price growth in recent times. In 2023, central banks bought 1,037 tons of gold, and in the first quarter of 2024, purchases continued at a pace 36% higher than initially anticipated. This demand is expected to continue in the second half of 2024, which could further bolster gold prices. [1]
What Are the Predictions for the Coming Year?
Geopolitical uncertainty, economic concerns, and increased demand for physical gold are contributing to its rising value. Analysts at J.P. Morgan forecast that the price of gold could reach $2,500 per ounce by the end of 2024 and $2,600 per ounce in 2025. However, these are much more conservative estimates compared to those from Citi Group, which expects gold prices to rise to $2,800 to $3,000 per ounce by 2025. [2] This forecast is based on an average median 12-month yield of 20%, as seen during two consecutive periods. However, these predictions assume a continued downward trend in inflation rates and thus lower interest rates.
Potential for Further Growth in Silver
Silver, a cheaper alternative to gold, has also had a relatively successful half-year, with its spot price falling slightly below $30 per ounce in Friday's trading. * Demand for this metal remains strong, with its value growth this year even surpassing that of gold. The largest buyers of silver are India and investors in silver-backed ETFs. According to the Silver Institute, demand for silver last year exceeded supply for the third consecutive year. This trend is expected to continue, with a forecasted deficit of 215.3 million ounces in 2024, marking the second-largest deficit in over two decades.[1]
Source: comexlive.org
Conclusion
Positive sentiment among investors persists, with many expecting further increases in gold prices. [3] Strategic investor positions suggest that there is room for additional exposure to gold. Despite a slight drop in gold prices due to profit-taking, the overall outlook remains positive, supported by expectations of lower interest rates and stable demand for this precious metal. Investors should consider adding gold, as well as other precious metals, to their portfolios as a hedge against inflation and economic uncertainty but should be prepared for potential short-term fluctuations. Gold continues to provide stability in uncertain times, and its outlook remains favourable, especially in the context of expected interest rate cuts in the U.S.
Warning! This marketing material is not and must not be understood as investment advice. Data relating to the past are not a guarantee of future returns. Investing in foreign currency may affect returns due to fluctuations. All securities transactions can lead to both profits and losses. Forward-looking statements represent assumptions and current expectations that may not be accurate or are based on the current economic environment, which may change. These statements are not guarantees of future performance. InvestingFox is a trademark of CAPITAL MARKETS, o.c.p., a.s. regulated by the National Bank of Slovakia.
* Data relating to the past are not a guarantee of future returns.
[1,2,3] Forward-looking statements represent assumptions and current expectations that may not be accurate or are based on the current economic environment, which may change. These statements are not guarantees of future performance. Forward-looking statements inherently involve risk and uncertainty because they relate to future events and circumstances that cannot be predicted and actual developments and results may differ materially from those expressed or implied in any forward-looking statements.
Sources:
https://www.fxempire.com/news/article/gold-is-ready-to-test-new-highs-1446132
https://internationalfinance.com/commodity/gold-etfs-lost-usd-billion-worst-more-than-ten-years/
https://www.jpmorgan.com/insights/global-research/commodities/gold-prices
https://www.mining.com/gold-silver-and-copper-had-a-banner-first-half/
[1] https://www.mining.com/gold-silver-and-copper-had-a-banner-first-half/
