Growing expectations that the Federal Reserve will take an aggressive approach to cutting interest rates this week have bolstered gold prices, which are holding near recent record highs above $2,600 an ounce. Analysts from ANZ Bank see the precious metal gaining further momentum as the easing cycle unfolds.
In their latest report, Soni Kumari, Commodity Strategist, and Daniel Hynes, Senior Commodity Strategist at ANZ, emphasized that gold’s recent breakout above $2,550 an ounce has captured the attention of bullish investors. They predict gold prices could rise to $2,900 an ounce by the end of 2025, driven by increased investment demand, which has been underwhelming in the first half of the year.
“Falling real interest rates and a weakening U.S. dollar are likely to strengthen their inverse correlation with gold during the Federal Reserve’s easing cycle. This will boost investment demand as the opportunity cost of holding gold diminishes. We expect strategic investments in gold to recover, pushing prices higher,” the analysts stated.
Markets are now anticipating an aggressive rate cut from the Fed, with a 65% chance of a 50-basis point reduction, according to the CME FedWatch Tool. However, some economists expect a more measured 25-basis point cut, paired with dovish signals for further easing through 2025.
Kumari and Hynes advised investors to focus on the broader trajectory of rate cuts rather than any single move. They estimate that a 100-basis point cut could result in 200–250 tonnes of net inflows into gold exchange-traded funds (ETFs) in the coming months. Furthermore, with the potential for a cumulative 200-basis point reduction during this cycle, inflows could increase by up to 500 tonnes.
ANZ remains bullish on gold, citing continued central bank purchases of the metal as a key support factor. Despite high prices, the analysts do not expect central banks to scale back their buying. They forecast central bank purchases of 950 tonnes in 2024 and 850 tonnes in 2025, slightly below the levels seen in recent years but still historically robust.
However, the analysts also cautioned that the gold market may face short-term volatility. With speculative positions stretched—shorts nearly covered and longs approaching 2020 levels—crowded trades could generate a headwind for prices in the near term.
Despite these risks, ANZ maintains a positive outlook on gold’s trajectory. “We expect prices to move towards the $2,640–2,650/oz range shortly, as long as prices hold above $2,550/oz,” the analysts said. However, they warned that if prices fall below $2,540/oz, it could signal a false breakout, triggering profit-taking and a potential decline to the next support level at $2,460/oz.
As the market awaits the Fed’s decision, gold investors remain on edge, eyeing further gains while bracing for potential volatility.
