Major banks expect gold to extend its record-breaking price rally into 2025 because of a revival in large inflows to exchange-traded funds (ETFs) and expectations of additional interest rate cuts from prominent central banks around the world, including the U.S. Federal Reserve.
“Strong physical demand from China and central banks supported gold prices over the past two years, but investor flow, and retail-focused ETF builds in particular, continue to hold the key to a further sustained rally over the upcoming Fed cutting cycle,” analysts at J.P. Morgan said in a note on Monday.
Non-yielding gold has gained nearly $570 an ounce, or over 27%, so far this year, putting it on track for its biggest annual rise since 2010 and positioning itself as one of the standout assets of 2024. The precious metal hit a record high of $2,639.95/oz earlier on Tuesday and has notched record highs several times this year.
“Despite reaching multiple highs this year and outperforming major stock indices, we believe gold has more room to run over the next six to 12 months,” analysts at UBS said in a note last month, adding that “key factors in our view include a revival of large inflows to exchange traded funds (ETFs) – something that has been missing since April 2022.”
The Fed began its easing cycle last week with a half-percentage-point rate cut, and forecast another 50 basis points of cuts by the end of this year and a full percentage point of cuts next year.
Zero-yielding bullion tends to be a preferred investment in a low interest rate environment and during geopolitical turmoil.
The Nov. 5 U.S. presidential election could also boost gold prices further as potential market volatility may drive investors towards safe-haven gold, analysts said.
The following is a list of the latest brokerage forecasts for 2024 and 2025 prices for gold (in $ per ounce):
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S&P flash US services Purchasing Managers’ Index (PMI) for September came in at 55.4, slightly above economists’ expectation of 55.2. Meanwhile, the S&P flash US manufacturing PMI for September was 47.0, which was weaker than the 48.6 economists were expecting.
Citi economist Veronica Clark joins Catalysts to discuss the print and what it signals about the health of the economy as the Federal Reserve continues to ease interest rates.
Clark notes that the services measure has been “remarkably steady” over the last five months. She highlights that the employment subcomponent is still in “contractionary territory” as it sits below 50. Meanwhile, she explains that manufacturing came in weaker than expected and that the industry is slowing overall, especially as the sector saw job losses during the month of August.
Heading into the year-end, Clark believes the recession risk is “still pretty elevated.” Thus, the state of the labor market is critically important. “We do think this is a genuine weakening of the labor market, and we can see that more in data that we’re going to get next Friday. We’ll have another jobs report before we get to that November decision also. But I think both of those should show this weakening trend continuing,” she tells Yahoo Finance.
If the labor market continues to weaken, Clark believes that the Federal Reserve could cut 50 basis points in November before continuing with 25-basis-point cuts.
While she sees the risk of inflationary pressures looking “pretty muted” over the next year, she will keep a close eye on the housing market. She explains, “Where you would expect to see any reemerging signs of inflationary pressures first would be in something like the housing market if we see home prices picking up or rents picking up… we have seen mortgage rates coming down, but those mortgage applications still look very low. I think what could be happening is that the labor market is weakening, and that’s going to offset any boost you would get from the lower rates in that sector.”
For more expert insight and the latest market action, click here to watch this full episode of Catalysts.
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Gold prices continue to skyrocket, closing last week at another record high, as several factors help boost the precious metal which has actually outperformed the blistering stock market in 2024.
Spot gold prices ended Friday at a new record of $2,622 per troy ounce in New York, according to FactSet data, extending its year-to-date gain to 27.1%, topping the U.S. benchmark S&P 500 stock index’s balmy 20.8% return, including reinvested dividends.
Gold is on track for its best return since 2010, outpacing even 2020’s 25.1% gain as the COVID-19 pandemic accelerated doomsday investment bets.
The most recent lift to gold prices was the Federal Reserve’s Wednesday decision to institute the first interest rate cut in 4.5 years, which provides a pair of tailwinds for the metal, according to conventional wisdom, as gold prices rose 2% from Tuesday to Friday.
Lower rates of return on other non-stock assets which offer fixed payments tied to the Fed-set interest rates, like short-dated government bonds and certificates of deposit (CDs), may make gold a more popular diversification option, and gold is considered perhaps the most popular hedge against inflation, meaning if the Fed acted too swiftly and U.S. inflation gets worse again, gold prices should benefit.
But it’s not just U.S. monetary policy boosting gold, as experts tie the increased appetite for gold to geopolitical risks globally, including from the U.S. election and the ongoing wars between Russia and Ukraine and Israel and Hamas.
Surprising Fact
The volume of global central bank purchases of gold have tripled since Russia invaded Ukraine in early 2022, according to Goldman Sachs, which also named concerns over climbing U.S. federal debt and the potential for increased institutional capital into gold exchange-traded funds (ETFs) as a driver of higher gold prices.
Big Number
811%! That’s how much gold prices have soared since the turn of the millennium, dwarfing the S&P’s 517% return since Dec. 31, 1999.
Key Background
The two largest years for central bank gold purchases on record were 2022 and 2023, according to the Wall Street Journal. China was the biggest buyer of the commodity during that stretch, though the People’s Bank of China declined to bolster its gold reserves from May to August, ending an 18-month streak of gold purchases. Gold prices typically increase during times of uncertainty as investors look to clutch onto the metal which has been viewed as a source of value for centuries, outlasting countless currency changes and conflicts. Gold, which traded as low as $255 per troy ounce in 2001, has enjoyed three distinct rallies since 2000, including around the 2008 financial crisis, around the COVID-19 pandemic and the last two years’ global inflation bout. The latest rally comes as most experts believe the odds of a U.S. recession is unlikely to occur imminently, eating into gold’s historic boost from heightened downturn fears.
Read full article HERE.
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.”
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.
Read full article HERE.
Spot gold prices hit a record high on Friday as a weak dollar, expectations of more U.S. interest rate cuts and tensions in the Middle East more than offset muted physical demand in Asia.
Spot gold was up 1.2% at $2,617.60 per ounce after hitting a record high of $2,617.89. U.S. gold futures rose 1.1% to $2,643.
Non-yielding gold is up 27% so far this year, heading for its biggest annual rise since 2010. It got the latest boost from the start of the Federal Reserve’s easing cycle on Wednesday.
“We expect further dollar depreciation, as the Fed catches up with other central banks who started their cutting cycles earlier. That should be gold price positive,” said WisdomTree commodity strategist Nitesh Shah.
Gold could hit $3,000 per ounce in a year amid geopolitical risks and investors hedging against a slowing economy, he added.
However, from a technical point of view, gold’s Relative Strength Index moved into “overbought” territory on Friday, at 70.9.
“Over the last few weeks gold’s inverse relationship with the US dollar, and indeed US treasury yields, has been very much reinstated,” said independent analyst Ross Norman.
“The path of least resistance for gold looks to be to continue higher and, even though it looks well overbought and much above fair value, the momentum trades are behind it and price strength looks in order,” Norman said.
Meanwhile, demand from the physical sector in Asia remains light and gold is trading there at a discount to the London price. Top consumer China did not import any gold from a major trading hub Switzerland in August, for the first time in 3-1/2 years.
In other metals, silver gained 2.0% to $31.39, platinum rose 0.5% to $993.85 and palladium was steady at $1,080.75.
Read full article HERE.
Gold advanced to another record high on Wednesday after the Federal Reserve announced an aggressive interest cut of half a percentage point to stimulate the US economy.
Spot gold rose as much as 1.1% to $2,600.11 per ounce, continuing its record-setting trend over recent weeks. US gold futures also had nearly the same percentage gain.
By late afternoon, however, gold had erased those gains, with spot gold down 0.4% at $2,559.15 per ounce and futures down 0.6% at $2,582.90 per ounce.
The US central bank was widely anticipated to lower interest rates at this week’s meeting after holding them at a two-decade high for more than a year, but traders were split over how much the first cut would be.
Meanwhile, gold has hit repeated records over the past weeks as investors weighed prospects that the Fed would deploy a rate reduction bigger than a quarter percentage point, which would present a significant boost to the non-yielding bullion.
Gold, Treasuries and the S&P 500 Index have all typically risen as the Fed starts lowering rates, according to a Bloomberg News analysis of the past six easing cycles going back to 1989.
Fed’s announcement on Wednesday caps a period of flux in the gold market, as some analysts have pointed to a return to more traditional trading patterns, and in particular to gold’s longstanding tendency to rise and fall in the opposite direction to real yields.
That relationship had broken down in recent years, as gold remained historically elevated even as rates soared — with prices supported instead by huge central bank purchases, as well as surging demand from investors and consumers in Asia. Gold prices have broken out dramatically this year in particular, soaring more than 25% to successive records.
In recent months, there have been signs of Western investors jumping back into the gold market too, as bets mounted that the Fed was about to pivot. Holdings in gold-backed exchange traded funds have risen for 10 of the past 12 weeks, while long-only gold positions in Comex gold futures are hovering near the highest in four years.
Read full article HERE.
Officials are hoping to prevent a gradual cooling in the labor market from turning into a deeper freeze
The Federal Reserve voted to lower interest rates by a half percentage point, opting for a bolder start in making its first reduction since 2020. The long-anticipated pivot followed an all-out fight against inflation the central bank launched two years ago.
Eleven of 12 Fed voters backed the cut, which will bring the benchmark federal-funds rate to a range between 4.75% and 5%. Quarterly projections released Wednesday showed a narrow majority of officials penciled in cuts that would lower rates by at least a quarter point each at meetings in November and December.
Fed Chair Jerome Powell’s decision to trim rates by a larger amount than most analysts anticipated until just a few days ago moved the central bank unwaveringly into a new phase of its inflation battle: It is now trying to prevent past rate increases, which last year took borrowing costs to a two-decade high, from further weakening the U.S. labor market.
“We are committed to maintaining our economy’s strength,” Powell said at a news conference. “This decision reflects our growing confidence that with an appropriate recalibration of our policy stance, strength in the labor market can be maintained.”
In its policy statement, the Fed said the decision reflected “greater confidence that inflation is moving sustainably toward 2%” and that the central bank “judges that the risks to achieving its employment and inflation goals are roughly in balance,” the Fed said in its policy statement Wednesday.
Stocks rose after the Fed announcement. Anticipation of rate cuts buoyed Wall Street in the run-up to this week’s meeting, with the Dow Jones Industrial Average hitting a new record on Monday. Yields on the 10-year Treasury note stood at 3.64% on Tuesday, ticking up slightly from a 52-week low recorded on Monday.
The decrease should provide some immediate relief to consumers with credit card balances and to small businesses with variable-rate debt. Long-term borrowing costs—on everything from mortgages to corporate debt—have already been declining in anticipation of a series of rate cuts this fall, particularly after Powell last month said reductions were on the way.
A rate cut never appeared to be in doubt this week, but analysts were uncharacteristically foggy over the size of the move. Many anticipated a smaller quarter-point cut. Fed officials have often preferred to make smaller changes in order to avoid having to reverse course if their moves prove premature.
Powell’s apparent decision to push his colleagues to make a half-point cut likely reflected so-called risk management concerns in which officials weigh the risks of various economic hazards, such as high inflation or rising joblessness, and navigate accordingly
For most of the past 2½ years, as inflation hit 7%, Powell had been single-mindedly focused on preventing inflation from becoming entrenched. Central bankers have long been haunted by the example of the 1970s, in which they took insufficient steps to constrain demand and allowed expectations of higher prices to become self-fulfilling.
But inflation has fallen over the last year, assisted by healed supply chains and a steady influx of workers to the job market. That suggests the downturn many economists once thought might be needed to tame inflation would now be overkill.
Meantime, more signs that the job market is softening have cropped up. The unemployment rate stood at 4.2% last month, up from 3.7% in January. Powell last month signaled he was shifting the Fed’s attention to preventing what for now looks like a gentle cooling in labor demand from turning into a deeper freeze.
In their projections, all Fed officials thought the unemployment rate would end the year between 4.2% and 4.5%. In June, most saw the unemployment rate settling around 4.0% at year-end.
While some Fed officials had argued in recent weeks the economy wasn’t weak enough to necessitate a half-point cut, others had concluded that labor-market cooling this summer warranted a larger reduction because the Fed was, in effect, catching up for lost time.
Fed officials entertained but opted against cutting interest rates at their previous meeting at the end of July. Two days later, hiring figures showed a sharper-than-expected slowdown in payroll growth and a bigger jump in unemployment. While central bankers don’t get mulligans, they might have opted for a cut if that data had been in front of them at the July meeting. A larger cut this week offered the chance to reset.
Some officials also feel greater urgency to cut rates because they are increasingly confident that rates are well above a so-called neutral level that neither spurs nor slows growth, and that rates will continue to be at a restrictive level even after Wednesday’s cut. With the economy closer to a healthy equilibrium, keeping conditions there could call for moving rates closer to this neutral level, which can’t be observed.
Fed governor Michelle Bowman dissented against Wednesday’s decision in favor of a smaller quarter-point cut. Bowman, who was appointed to the board by Donald Trump in 2018, became the first governor to dissent against an interest-rate decision since 2005. It was the first dissent by any voter on the rate-setting committee since June 2022.
The Fed rate cut marks just the sixth time in the past 30 years that the central bank switched from raising to lowering rates. Usually when the Fed starts cutting rates, it doesn’t know whether it will make a handful of small moves—as it did in 1995 and 1998 when the economy avoided a downturn—or whether it is the start of a longer series of reductions, as in 2001 and 2007 when the central bank cut rates a few months before the economy entered recession.
Interest-rate projections show officials penciled in the equivalent of another four cuts of a quarter point next year, assuming the unemployment rate doesn’t jump and inflation continues to decline. That would take the fed-funds rate to just below 3.5% by the end of 2025.
Officials are walking a fine balance as they attempt to engineer a soft landing that brings inflation down without a recession, all while trying to tune out crossfire from politicians ahead of the fall elections.
Three Senate Democrats, including Elizabeth Warren of Massachusetts, called on Powell this week to make a larger cut of 0.75 point, something the Fed has only done when the economy is in obvious distress.
Some Republicans are upset that a rate cut might boost sentiment ahead of the November election. The rate cut is a sign the economy is “not good. Otherwise you wouldn’t be able to do it,” Trump said at a town hall on Tuesday night. Powell has said the Fed doesn’t take political considerations into account.
Rep. Patrick McHenry (R., N.C.), who chairs the House Financial Services Committee, said in an interview Tuesday he expected the Fed to ignore political noise. “The Fed should act in the way that the data indicates they should act—period,” he said. “The outrage to me is … for instance, if you’re on the right, you say, ‘The Fed should be independent, except I think right now they should do this.’ And on the left, the same.”
The Fed slashed rates to near zero in March 2020 as the Covid-19 pandemic brought global commerce to a standstill, and officials held rates at that level for two years. In the spring of 2021, they misdiagnosed a sharp rise in inflation as likely to be short lived.
Powell pivoted at the end of 2021, first withdrawing stimulus and then lifting rates in March 2022. Inflation hit 40-year highs, and officials quickly reeled off hikes in unusual 0.5- and 0.75- point increments. It was the most rapid interval of rate increases since the early 1980s, and it took rates to a two-decade high in July 2023.
Most global central banks reacted in a similar fashion to inflation that soared in most of the world’s advanced economies, first as economies reopened from the pandemic and later as Russia’s invasion of Ukraine drove up energy and commodity prices. With Wednesday’s rate cut, the Fed joins policymakers in Canada, the European Union, and the United Kingdom, among others, in beginning to dial down interest rates.
Powell signaled at the end of last year that the Fed was probably done raising rates and was turning its attention to when to cut, but officials scrapped tentative plans to begin reducing rates this summer after a sharper-than-expected burst of inflation greeted the U.S. economy in the first quarter.
At their meeting in June, a narrow majority of officials thought the Fed would make just one quarter-point cut this year, and some officials this spring puzzled over why higher borrowing costs hadn’t done more to slow economic activity.
But in recent months, the fingerprints of tighter monetary policy have become more apparent, convincing officials they could finally ease off the brake pedal. While layoffs are low, hiring has slowed. There were fewer than 1.1 job vacancies for every worker counted as unemployed in July, down from 1.25 before the pandemic and from a peak of 2 when the Fed began raising rates in March 2022.
Interest-sensitive manufacturing and real estate sectors have been soft. Corporate America has increasingly warned that low- and middle-income consumers are resisting higher prices, leading to more promotions and discounts.
Inflation receded to 2.5% in July from around 5.5% in January 2023. Wage growth has slowed in recent months, and oil prices are down 19% since April.
Economists are also divided over whether rate cuts will help avert a sharper slowdown in the months ahead. Unlike 2001 and 2007, when the Fed initiated rate cuts with a larger half-point reduction, the economy isn’t suffering from evident financial-market stress or deflating asset bubbles.
On the other hand, modest rate cuts might be of little help to corporate borrowers who locked in much lower fixed borrowing costs before 2022 and who need to refinance over the next year at rates that could still be high, even as the Fed dials rates down.
It’s also unclear how much marginal declines in rates will stoke housing activity given serious affordability challenges. While mortgage rates have fallen meaningfully in recent weeks, there haven’t yet been notable signs of increased demand. Applications for home purchase loans last week were no higher than their level one year ago, even though mortgage rates are down sharply. Rates fell to 6.2% last week, the lowest level in more than a year and a half.
Just as Fed officials and private-sector economists misjudged how the transmission of higher rates to the economy two years ago had been dulled by households and businesses that locked in low rates, “there’s a risk the easing cycle will see some similar challenges,” said Rebecca Patterson, former chief investment strategist at Bridgewater Associates.
Bond investors are anticipating another 2 percentage points in rate cuts over the next 1½ years, while stock valuations suggest investors see healthy earnings growth over the next year. “For all of that to transpire, you need to see Fed easing have that supporting effect on consumer and business activity,” said Patterson. “The channels can’t get clogged.”
See full article HERE
Gold has surged despite macroeconomic headwinds, primarily due to central bank purchasing and geopolitical tensions. Could the rally see another gear after lower interest rates and a weaker dollar?
John Reade of the World Gold Council has seen gold rally to record highs of about $2,575 an ounce despite a strengthening dollar and rising interest rates in Europe and the U.S.
Now, he’s looking to the yellow metal to see how it performs when those headwinds are removed.
“Gold has been able to ignore some of the classic macro drivers,” he told Investing News Network. “But that may be changing now. … I think it’s going to be Western macroeconomic factors that probably take the lead in determining gold’s direction for the balance of this year and into 2025.
“Gold typically performs pretty well when rates are cut, and if those rate cuts lead to weakness in the U.S. dollar, which they certainly might, that could be a double tailwind helping the metal from here.”
Global debt levels continue to rise
Global debt recently hit an all-time high after three consecutive quarterly reductions, which should turn investors to gold, according to Jupiter Asian Income manager Jason Pidcock.
“Fiscal policy globally is very loose, and that is a concern,” he told Portfolio Adviser. “Budget deficits — even when economies have supposedly been strong — have been way too high, and that’s why we’re invested in gold mines.”
Pidcock said Jupiter Asian Income is speculating a reduction in value among fiat currencies, which should lead to a rise in commodities prices.
“Everyone should have some exposure to gold, whether it’s as an insurance policy or just sensible diversification,” he said.
See full article HERE
Happy Fed day, in what will be a momentous decision not just for the fact that it will herald the beginning of an interest rate-cutting cycle but for the uncertainty over the magnitude of the reduction.
The last time the interest rate for a Fed decision was set more than 10 basis points away from market expectations was March 3, 2020 — the emergency cut at the beginning of the COVID pandemic, points out Michael Brown, senior research strategist at Pepperstone. That gives the interest-rate cycle a symmetry — uncertainty on the way up, and uncertainty on the way down.
But it may be a puzzle as to why the Fed is cutting rates at all when the economy is far from recession — the Atlanta Fed’s GDPNow estimate of third-quarter growth is a healthy 3% — and inflation is still above target.
David Kotok, the chief investment officer of Cumberland Advisors who hosts an annual summer gathering in Maine of investors and other financial market participants, points to a warning from an employment measure that doesn’t officially exist. It’s called U-7, invented by David Blanchflower, the Dartmouth labor economist who served on the Bank of England’s monetary policy committee.
U-7 is actually not hard to compile — it’s a simple calculation involving two measures of underemployment that the Labor Department produces each month. It yields the number of part-time workers who want full-time jobs as a percentage of the workforce.
Kotok says the idea behind U-7 is that it isolates the most fragile element of the workforce. He says the way to use the number is to compare it with the main unemployment rate, which the Labor Department calls U-3. When the U-3 rises faster than the U-7, that’s a recession warning.
Blanchflower himself in a paper he co-authored said the U-7 segment also is key to understanding wage pressure. The idea is that it’s an indicator of the weak bargaining power of the full-timers. When there’s a bigger pool of underemployed, that naturally leads to less bargaining power for the fully employed.
U.S. stock index futures ES00-0.09%, NQ00-0.06% edged higher early Wednesday, following the fourth highest close on record for the S&P 500 SPX-0.08% . Oil CL00-2.19% was trading below $70 per barrel. Gold GC000.16% was hovering around $2,600 an ounce.
The buzz
The Fed decision is due at 2 p.m. Eastern, with the market leaning toward a half percentage point, rather than 25 basis point, reduction. Jerome Powell’s press conference starts 30 minutes later.
Mortgage activity, and in particular refis, soared heading into the Fed decision, according to Mortgage Bankers Association data. Housing starts also rose, topping forecasts.
See the full article HERE.
By Andrew Addison
My work turned bullish long-term on gold GC00 -0.78% almost two years ago when the precious metal closed above $1680 an ounce in November 2022. Its most recent cyclical advance began with its liftoff gap last October at $1845. Then, in March, gold said goodbye to 13 years of resistance in the $2100 area when it broke out decisively. And now with last week’s record close at $2610, gold is beginning to advance with “escape velocity,” which projects substantially higher prices.
Let’s check the charts to see why.
The daily chart (above) illustrates the resistance trendline that had repelled gold starting in April. Despite many false starts and bearish reversals (yellow arrows), gold consolidated for a month at resistance before breaking out last Thursday.
Next, the weekly chart (above) shows that after false starts (yellow arrow), gold formed two “bull flags” (pink). Quick advances were followed by sideways price action and sharp advances to new highs. With a decisive hurdling of final resistance, gold launched escape velocity.
On the monthly chart, you can see the gigantic 13-year base. From 2020 to 2023, gold formed a series of high-level consolidations. Each high-level consolidation was higher and shorter than the previous one—indicating weakening selling pressure on each probe to the top of the base.
With last month’s breakout, gold overcame final resistance to begin “escape velocity” that my work projects to $3000-plus. Consider all pullbacks as opportunities to buy or add to positions.
See full article HERE.