Gold (XAU/USD) touched an all-time high on Friday. Carsten Fritsch, commodities analyst at Commerzbank, suggests that upcoming rate cuts by the Fed would continue to support prices, raising the gold price forecast to $2,500 an ounce by the end of the year from $2,300 previously.
Gold Outlook Improves as Fed Prepares to Cut Interest Rates
The US inflation rate fell below 3% in July. However, the base rate excluding energy and food was still slightly higher at 3.2%. While this is enough for the Fed to cut rates for the first time in September, it is barely enough to cut rates by 50 basis points. Fed futures now set just under 100 basis points of interest rate cuts by the end of the year, but that’s still significant. So, we expect to reach and surpass an all-time high in the not-too-distant future”.
Given the obvious signs of a significant rate cut by the Fed, we raised our year-end gold price forecast to $2,500 per ounce (previously $2,300). The three rate cuts we expect by the end of the year are likely to be followed by three more cuts in the first half of 2025. This represents a total of two more rate cuts than previously anticipated.”
Accordingly, we expect the price of gold to rise to $2,600 by the middle of next year. At the end of 2025, gold is likely to fall to $2,550 (formerly $2,200) in light of a renewed rise in inflation and speculation associated with a rate hike the following year.”
Gold stabilizes amid interest rate cut and Powell’s speech
August 16, 2024, Gold prices remained flat on Friday, poised for weekly gains as investors anticipated a possible cut in US interest rates, with all eyes focused on Federal Reserve Chairman Jerome Powell’s upcoming speech for further guidance.
In the spot market, gold settled at $2,455.50 an ounce. up more than one percent since the start of the week. U.S. gold futures settled at $2,493.00. While silver fell 0.7 percent to $28.19 an ounce, platinum rose 0.2 percent to $954.25, reaching a two-week high.
Palladium saw a slight 0.3 percent decline to $941.78. Despite this minor volatility, the three metals are on track for weekly gains, reflecting broader market optimism. Traders are now waiting for Powell’s speech next week for insights on the Fed’s policy direction.
The latest data has restored confidence shaken by a surprisingly weak employment report earlier this month. It also boosted optimism about improving inflation, as evidenced by the July releases of the PPI and CPI this week.
Traders are convinced that the Fed will cut interest rates on September 18 but discussed the size of the cut. The odds are currently 25% for a 50-basis point cut, down from 36% the previous day.
The low-interest rate environment tends to enhance the attractiveness of non-yielding bullion. Minutes of the Fed’s policy meeting is scheduled to be released and Powell will speak about the US economic outlook next Friday at the Jackson Hole symposium.
In other precious metals, spot silver fell 0.6 percent to $28.22 an ounce, and platinum fell 0.2 percent to $951.05 after climbing four percent to a two-week high on Thursday. Palladium fell 0.6 percent to $941.19.
Gold bullish outlook amid resistance at $2,500
Gold market has demonstrated considerable strength recently, and this trend appears poised to continue. Buyers have consistently emerged during market declines, suggesting strong support and confidence in gold’s future prospects. The current market conditions hint at a potential significant rise, given the various factors at play.
Recently, gold markets have experienced notable volatility. Early Friday, there was another attempt to break through resistance levels on the upside. The $2480 mark seems to be a key point of resistance, and this barrier extends up to the critical $2500 level. Given the presence of potential options barriers around $2500, achieving this level might be challenging in the near term.
Despite these challenges, it is widely believed that it is only a matter of time before the $2500 resistance is breached. This anticipated breakthrough could lead to an increase in FOMO (fear of missing out) trades, driving prices higher. In the short term, we expect to see support around the $2440 level, with additional support at the $2400 mark, which aligns with the 50-day exponential moving average (EMA). This scenario presents opportunities for investors, either through buying bonds or capitalizing on a substantial breakout in the gold market.
Several factors contribute to gold’s upward trajectory. Geopolitical tensions around the world add to its appeal as a safe-haven asset. Additionally, central banks globally are increasing their gold holdings and cutting interest rates, further supporting gold’s price. These elements, combined with ongoing volatility and uncertainty, make gold a compelling investment choice in the current climate.
