Gold has outperformed the broader U.S. stock market this year, and Wall Street has become bullish on the precious metal as the Federal Reserve moves closer to cutting interest rates.
Bullion is up about 21% in 2024, compared with a 16% gain for the S&P 500. Gold surged as much as 2.2% on Friday, topping $2,500 an ounce and hitting a new record high.
Recession fears have eased over the past week after weak jobs data sparked caution, but recent indicators point to weakness in key sectors such as homebuilding that could justify more aggressive rate cuts by the Fed.
Gold typically rises when the outlook for long-term interest rates darkens, making yielding assets such as bonds less attractive.
Commerzbank Research upgraded its outlook for gold in a note on Friday, now expecting the Fed to cut rates three times by the end of the year and three more in the first half of 2025. Overall, that would be two more cuts than previously expected.
“We therefore expect gold prices to rise further to $2,600 by the middle of next year,” wrote senior commodity analyst Carsten Fritsch. “By the end of 2025, gold prices are likely to fall to $2,550 (previously $2,200), given speculation of a resurgence in inflation and associated interest rate hikes the following year.”
Other analysts are even more bullish. Bart Melek, head of global commodity strategy at TD Securities, told Bloomberg on Friday that gold could reach $2,700 an ounce in the coming quarters, citing the prospect of more Fed easing.
Meanwhile, Patrick Yip, senior director of business development at American Precious Metals Exchange, said: CBS Money Watch Late last month, I predicted that gold could hit $3,000 as early as next year if geopolitical uncertainty continues, interest rates are cut or gold purchases by global central banks increase.
Indeed, central banks have become the largest source of gold demand as countries such as China, Turkey and India seek to diversify their reserves away from the US dollar, especially after seeing Russia’s dollar assets frozen by the West following its invasion of Ukraine.
JPMorgan estimates that central banks bought more than 1,000 tonnes of gold last year. The People’s Bank of China’s gold buying streak, its longest on record, ended in May, and in June India’s central bank increased its gold reserves by the largest amount in nearly two years.
Meanwhile, fears remain over a possible economic recession, which would increase demand for safe-haven assets like gold and force the Fed to cut interest rates further.
“Black Swan” investor Mark Spitznagel, founder and chief investment officer of private hedge fund Universa Investments, said: luck The biggest market bubble in history will soon burst and we will see a recession this year.
“Nothing is different this time around – anyone who says it is isn’t really paying attention,” he said, adding: “The only difference is that the size of this bubble that is bursting is bigger than anything we’ve ever seen before.”
