Gold Hits Record High on Fed Rate Cut, Analysts Predict Further Gains
Gold prices touched a fresh record high on Tuesday, continuing a recent uptrend sparked by a significant rate reduction from the Federal Reserve last week. Sentiment among investors has been positive, fueled by expectations of more rate cuts later this year. Citi analysts anticipate at least 125 basis points of cuts by year-end.
Lower interest rates are favorable for gold as they reduce the opportunity cost of investing in non-yielding assets. This month, gold has surged by over 5%, defying historical trends for this period. UBS analysts noted that market participants are increasingly bullish on gold, although positions have yet to reflect this optimism.
While some traders await pullbacks to enter the market, the lack of opportunities has led to sharp price increases as investors chase higher prices. UBS analysts suggest that a period of consolidation may be beneficial for the market, allowing weak long positions to be cleared out and attracting long-term investors at better levels.
Looking ahead, analysts believe that a potential cooling in gold’s returns is possible if US economic growth accelerates, leading the Fed to adopt a more hawkish stance on interest rates. However, they expect any downside to be limited, emphasizing that a temporary pause in the market’s rally could be healthy in the long run.
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