As US rate cuts significantly enhance gold's appeal as a safe-haven asset, the precious metal soared to a fresh record high on Friday, hitting 2,626 per ounce, buoyed by renewed expectations of additional rate cuts. Precious metals analysts suggest that this new milestone positions gold well to explore higher levels, with the next targets ranging from $2,649.43 to $2,660.90. Support is anticipated at $2,546.86, with stronger backing at $2,477.18, where the 50-day moving average provides intermediate support.
They note that with the likelihood of further interest rate reductions, the cost of holding non-yielding assets like gold decreases, making it more attractive as a safe haven during economic uncertainties. Analysts predict that gold is poised to end strongly, close to its highs for the period. Following its record high of 2,626, gold continues to trade near its daily highs, heading towards the next target zone starting at 2,650 and extending to 2,661.
Rania Gule, a senior market analyst at XS.com, informed Khaleej Times that the price surge is influenced by various economic and geopolitical factors, sparking debates about gold's role as a haven amid ongoing global tensions. "In my opinion, the weakening dollar is the main driver of increased gold demand, which, despite yielding nothing directly, remains appealing to investors seeking to protect their wealth in an environment where returns from other assets are dwindling," Gule stated.
Goldman Sachs Research anticipates the price to hit $2,700 by early next year, supported by further interest rate cuts and gold acquisitions by emerging market central banks. The metal could receive an extra boost if the US enforces new financial sanctions or if concerns about the US debt burden intensify. "Gold is our strategists' top choice for a near-term long position (the commodity they most expect to rise in the short term) and also their preferred hedge against geopolitical and financial risks," the bank noted.
Strategists Samantha Dart and Lina Thomas from Goldman Sachs Research highlight three specific factors that could drive prices higher. These include central bank purchases, impending Fed cuts, and potential geopolitical shocks. Since Russia's invasion of Ukraine in 2022, central banks have been acquiring gold at a rapid pace—approximately three times the previous rate. Goldman Sachs Research forecasts this buying trend to continue due to worries about US financial sanctions and the expanding US sovereign debt burden.
Ryan McIntyre of Sprott Asset Management emphasized that gold is significantly under-owned in Western markets and remains one of the few assets capable of countering fiscal threats. He pointed out that alongside rate cuts, ongoing US dollar depreciation and uncertain fiscal policies across Western economies are fueling greater interest in gold. As the dollar weakens, non-dollar investors find gold more appealing, further bolstering the metal's rally. Gold has risen over 26% so far in 2024, supported by geopolitical tensions in the Middle East and Europe, adding layers of uncertainty that traditionally benefit gold.
They contend that further rate cuts by the Fed will likely draw Western investors back into the gold market after they largely stayed away during the metal's sharp rally over the past two years. Gold provides substantial value as a portfolio hedge against developments such as tariffs, Fed subordination risk, and debt sustainability fears. "Our researchers estimate roughly 15% upside in gold prices under a rise in financial sanctions equivalent to the increase seen since 2021, and similar gains if mounting debt concerns cause US government credit-default swap spreads (a measure of creditworthiness) to widen by 1 standard deviation (13 basis points)."
"From a fundamental standpoint, I believe gold is well-positioned to maintain its upward trajectory soon, supported by a weakening dollar and ongoing economic and geopolitical concerns. However, it is crucial to closely monitor market developments, as any shifts in monetary policy or de-escalation of geopolitical tensions could lead to a correction in gold prices. Therefore, I advise investors and traders to remain cautious about potential price pullbacks while seizing opportunities if the current trends continue to support further gold price increases," Gule concluded.
