Another day, another record, it seems, for gold as prices reached another milestone after gold surpasses $2500. It has been a year to remember, as bullion has jumped over 20% in 2024 so far.
Analysts are expecting more to come as the yellow metal thrives during times of uncertainty, as it confirms its appeal as a safe haven asset. With tensions in the Middle East a driving factor for the rally, any chance of a pullback seems unlikely.
As for the US dollar, the inverse relationship between gold and the greenback has seen the dollar index hit a new low, breaking the 102.00 level for the first time since January.
During the height of the pandemic, the dollar was surging against its main rivals as the Fed aggressively raised rates. But what a difference a year makes, as Covid is now firmly in the rear-view mirror, speculation is mounting as to not if but when the Fed will begin reducing rates.
The Fed is likely to push gold higher, as we have recently seen prices boom based on pure speculation alone that a rate cut is imminent.
The recent gold rally, which has seen gold surpasses $2500, has led to a fall of over $4 on the Dollar index.
Will the Fed cut aggressively?
As the rumour mill goes into overdrive, talk is that the Fed will make a modest cut to its monetary policy in their next meeting. However, as we edge closer to the next signal, many economists are looking towards 50 or up to a 100 basis point cut by the end of the year.
However, the first move will most likely see a 25-point cut, as anything higher will more than likely scare the markets, something the Fed will want to avoid.
The Fed has stood firm with acting too soon, unlike other central banks, as they await clear and concise data from the economy. With inflation dropping, the hope of a recession fading and encouraging jobless claims, the time is suitable for the Fed to make a move.
As the Jackson Hole symposium edges closer, Jerome Powell is expected to give his economic outlook and more signals on the Fed’s next move, which could send gold higher.
As prices hit another record, it’s not only traders that are buying the metal.
Gold hit record highs as the pandemic, geopolitical tensions, and the Fed boosted prices
Central Banks driving the price
Central banks such as China and India are increasingly turning to gold to diversify their portfolios as the dependency on the dollar declines, another reason for the rally.
Gold serves as a stable asset for central banks and offers a safety net during times of volatility and market turbulence.
Incorporating gold alongside foreign currencies and other assets helps mitigate risks linked to geopolitical instability, something we have seen since the Ukraine and Russia conflict.
So, how will analysts be trading gold after surpassing $2500? It seems the sky is the limit!
Gold to $3K?
Many traders are wondering when the bubble will burst. Can prices really keep driving higher? Well, there’s no reason why gold can’t reach $3,000 as soon as next year if there’s continued geopolitical uncertainty and further rate cuts from the Fed.
Will we get there by the end of this year? Well, that’s a bit too optimistic, as that would be a 25% appreciation from the price level now.
However, with geopolitical tensions not looking to simmer any time soon and the Fed under enormous pressure to begin cutting rates, there is an expectation that the rally is far from over yet.
However, in any market, establishing new record highs on multiple occasions leads forex and gold traders to think that a correction is in store because positioning is too high. It could also be a case of the rally getting warmed up.
Any flurry of activity in the markets usually brings together plenty of new investors, with buyers attracting buyers. But can we expect this to continue? $3,000 per ounce might have seemed unthinkable, but it could be possible next year. Of course, it can’t be guaranteed, as market conditions change constantly.
However, if you are trading gold as a CFD, make sure your portfolio is diverse enough to include other instruments as well as other precious metals, so if there is a downturn in the market, your risk capital is protected.