Gold market targets $3,000 mark at record prices

Published : 6 mins agoTo 13.09.2024

By Anushree Ashish Mukherjee and Anjana Anil

(Reuters) – Gold bulls are banking on a surge in precious metal prices to new record highs, with the $3,000 an ounce mark in sight, fueled by monetary easing from major central banks and a neck-and-neck U.S. presidential election.

The spot price of gold hit an all-time high of $2,572.81 an ounce on Friday and is on track for its strongest annual performance since 2020. The over 24% rise is due to safe-haven demand due to geopolitical and economic uncertainties and robust buying by central banks.

Gold prices could reach $3,000 an ounce by mid-2025 and $2,600 by the end of 2024, driven by U.S. interest rate cuts, strong demand from exchange-traded funds and over-the-counter physical demand, said Aakash Doshi, head of North American commodities at Citi Research.

Last week, the World Gold Council said global physically gold-backed exchange-traded funds recorded inflows for the fourth consecutive month in August.

With the next Federal Reserve meeting on September 18 approaching, markets are intrigued by the likelihood of the first US interest rate cut since 2020. Low interest rates tend to be positive for gold, which does not pay interest.

According to the CME FedWatch tool, investors are currently calculating a 55 percent chance of a 25 basis point interest rate cut in the US and a 45 percent chance of a 50 basis point cut.

If current data point to growth risks and labor market weakness, the likelihood of a 50 basis point rate cut in November or December increases, which would increase the tailwind for gold and bring forward the $3,000 mark, says Peter A. Grant, vice president and chief metals strategist at Zaner Metals.

The major central banks are already in the middle of cutting their key interest rates and announced their second quarter-percentage point cut this year on Thursday.

“We are also evaluating other factors that are driving demand from Western investors, including the upcoming U.S. elections, which are likely to add to uncertainty, and the fact that gold serves as a hedge against immediate event risk,” said Joseph Cavatoni, market strategist at the World Gold Council.

The upcoming presidential election on November 5 could push gold prices higher as potential market volatility could drive investors toward the safe haven of gold.

Reaching the $3,000 per ounce target is possible, said Daniel Pavilonis, senior market strategist at RJO Futures, adding that the scenario could be driven by political unrest following elections.

Investment banks and analysts are increasingly optimistic about gold, with Wall Street bank Goldman Sachs showing the greatest confidence in a near-term uptrend in gold, which remains the bank's preferred hedge against geopolitical and financial risks.

Australian gold company Macquarie raised its gold price forecast this week and now expects the cyclical peak to be at $2,600 an ounce in the first quarter of next year, with the potential for a rise towards $3,000.

“While the backdrop of the difficult fiscal outlook in developed markets remains structurally positive for gold, there is arguably a lot already priced in and the potential for cyclical headwinds to emerge over the course of next year,” said analysts at Macquarie.

(Reporting by Anushree Mukherjee, Anjana Anil and Swati Verma in Bengaluru; Editing by Christina Fincher)