Gold hit a fresh high, as concerns around inflation and the US economy linger, with bets that the precious metal could hit the $3,000 mark next year.
The spot gold price hit $2,622 per ounce on Friday, with a rise of 1.7% over the course of the week and more than 1% on Friday alone, according to Deutsche Bank. The price held steady on Monday, edging slightly higher to $2,623 per ounce, while gold futures (GC=F) were up to $2,647.
Deutsche Bank’s analysts said in a note that “with the Fed cutting rates by 50bps (basis points), there was a bit more concern about inflation again”, pushing gold prices higher.
Gold is considered a safe haven investment to hedge against the impact of inflation, as its value typically rises as the pricing power of the currency in which it is priced falls.
Susannah Streeter, head of money and markets at Hargreaves Lansdown, said: “Gold is predominantly traded in US dollars so falls in the currency can make the metal cheaper for buyers, helping increase demand.”
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The pound continued to strengthen against the dollar (GBPUSD=X) on Monday, trading at $1.33 in the afternoon.
Streeter added that inflation remained “stubborn in some economies and there are also concerns that governments across the world continue to run up high levels of debt, which is associated with a rise in long-term inflationary expectations.”
The US Federal Reserve announced its first interest cut in four years last week, slashing its range to between 4.75% and 5%.
The Federal Open Market Committee (FOMC) said it had “gained greater confidence that inflation is moving sustainably toward 2%” but added that “the economic outlook is uncertain”.
Fed members foresee two more 25 basis point cuts this year and four more in 2025, based on projections.
Some on Wall Street considered the decision to go with a heftier 50 basis point cut, rather than 25 basis points, as an indicator that the Fed was playing catch up.
However, Fed chairman Jerome Powell said the central bank didn’t think it was “behind” on cutting rates.
Central banks have been keeping interest rates higher in a bid to slow down spending and demand enough to lower inflation back down to a widely used target level of 2%. At the the same time, rate setters are trying to avoid waiting too long to cut rates, as this risks slowing activity so much that it tips economies into a downturn.
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US inflation fell to 2.5% in the year to August, which was its lowest level in more than three years and down from 2.9% in July, but is still above target.
Meanwhile, Fed officials also raised their projections on the rate of unemployment, a key indicator of economic health, to 4.4% from 4% for 2024.
Investors will be keeping a close eye on a second-quarter economic growth reading, due out on Thursday, as well as the release of the latest Personal Consumption Expenditures index on Friday, as the Fed’s preferred inflation gauge.
Looking ahead on the gold price, Blue Line Futures chief market strategist Phil Streible told Yahoo Finance that a “12 to 15-month price target is $3,000”.
Meanwhile, Aakash Doshi, head of commodities, North America at Citi Research, said gold could hit $3,000 by mid-2025, according to a Reuters report.
In addition to economic concerns, Streeter said that a “ratcheting up in tensions in the Middle East has propelled fresh interest in the precious metal. There are still heightened worries about an escalation of conflict following Israeli attacks on Hezbollah in Lebanon, which have been intensifying.”
She said that gold “could gain fresh ground if geo-political tensions deteriorate. However, historically over the very long term, the gold price has matched inflation.”
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