Federal Reserve’s Interest Rate Cut Boosts Investor Appetite for Gold
Analysts at Citi are optimistic about the outlook for gold following the Federal Reserve’s aggressive interest rate cut last week. The decision to lower rates is expected to increase investor appetite for the precious metal. The analysts at Citi have reiterated their “bullish” stance on gold, projecting a baseline average price of $2,800 to $3,000 per ounce in 2025.
Record High Gold Prices
Gold prices reached a record high in Asian trade on Monday, driven by positive sentiment surrounding lower US interest rates and uncertainty ahead of additional economic cues this week. The yellow metal saw a peak last week after the Fed’s rate cut of 50 basis points, signaling the beginning of an easing cycle that could potentially bring rates down by as much as 125 basis points this year.
Impact of Lower Rates on Gold
Lower interest rates typically bode well for gold, as they reduce the opportunity cost of investing in non-yielding assets. Additionally, a decrease in borrowing costs diminishes the appeal of the dollar and debt, further boosting the attractiveness of gold as an investment.
Upcoming Economic Events and Central Bank Meetings
This week, a number of key events are set to take place that could impact the price of gold. Federal Reserve Chair Jerome Powell and other Fed members are scheduled to speak, providing further insight into the central bank’s monetary policy plans. In addition, the release of the monthly personal consumption expenditures price index data on Friday will be closely watched.
Central bank meetings in Switzerland and Sweden are also expected to result in interest rate cuts this week, further influencing market sentiment towards gold.
Impact on Industrial Metals
The optimism surrounding lower interest rates has also had a positive effect on industrial metals like copper. Traders are closely monitoring stimulus measures in China, particularly after the unexpected repo rate cut by the People’s Bank of China to bolster local liquidity.
Looking Ahead
The analysts at Citi suggest that copper could be a promising trade opportunity if the Fed cuts rates and China implements easing measures, leading to a soft landing and global manufacturing growth cycle rebound. However, they caution that the outcome of the US elections, particularly a surprise victory for Republican presidential candidate Donald Trump, could introduce volatility into the market, particularly regarding tariff implementation risks.
