Gold prices continued to climb on Thursday, buoyed by the expectation that the Federal Reserve may start cutting rates by September, along with softer inflation figures and dovish signals from the central bank.
### Fed to start cutting rates soon
Federal Reserve Chair Jerome Powell’s remarks on Monday about decreasing inflation were interpreted by the market as a sign that a rate cut is imminent. The CME FedWatch tool now indicates a 93.3% chance of a rate cut in September, with a 6.7% possibility of a half-percentage point cut. The recent drop in the June consumer price index, which led to the lowest annual inflation rate in three years at 3%, has further fueled hopes for monetary easing and potentially boosted gold purchases.
### Central bank demand
While China and India are showing reduced gold demand, central banks globally, especially in Russia and China, are increasing their gold holdings as part of diversifying assets away from major currencies. This sustained demand is expected to support gold prices in the future, especially with the potential for a weaker US dollar. Additionally, ETFs have played a crucial role in the recent surge in gold prices, with holdings in gold ETFs showing an uptrend.
### What’s the outlook for gold prices
Despite positive real interest rates, gold prices have hit record highs due to various factors mentioned above. Analysts at HSBC expect real rates to influence gold prices towards the end of 2024 and 2025. While there is bullish sentiment in the market, leading to a sustained upward trajectory, some analysts believe that prices are becoming overstretched. HSBC has adjusted its gold price forecasts for the coming years, foreseeing short-term strength but a potential decline by the end of 2024 or into 2025. On the other hand, Citi analysts are bullish on gold, predicting prices to reach $3,000 per ounce based on factors like a weaker US labor market and a dovish Federal Reserve stance.
This additional insight provides a broader perspective on the driving forces behind the recent rally in gold prices, including the role of central banks, ETFs, and market forecasts, giving readers a more comprehensive understanding of the current gold market dynamics.
