Gold has significantly outperformed the broader U.S. stock market in 2024, with Wall Street becoming increasingly optimistic about the precious metal. As the Federal Reserve nears potential rate cuts, gold has surged approximately 21% this year, while the S&P 500 has risen 16%. On Friday, gold prices reached a new record high, climbing as much as 2.2% to exceed $2,500 per ounce.
Recent data suggests easing recession fears following a weak payroll report. However, indicators like softness in homebuilding could support the need for more aggressive rate cuts by the Federal Reserve.
Gold generally benefits when interest-bearing assets, such as bonds, become less appealing due to a dimmer outlook on long-term rates.
In a Friday note, Commerzbank Research upgraded its gold forecast, anticipating three Fed rate cuts by the end of 2024 and another three in the first half of 2025. This projection is two cuts higher than previously expected. Senior commodity analyst Carsten Fritsch predicted that gold prices could rise to $2,600 by mid-2025, but might fall to $2,550 by the end of 2025 due to renewed inflation concerns and potential interest rate hikes.
Other analysts have even more optimistic views. Bart Melek, global head of commodity strategy at TD Securities, suggested gold could reach $2,700 per ounce in the coming quarters, citing potential Fed easing. Meanwhile, Patrick Yip, senior director at American Precious Metals Exchange, hinted that gold might hit $3,000 as soon as next year if geopolitical uncertainties persist, rate cuts continue, or global central banks increase their purchases.
Central banks have been major contributors to gold demand. Countries like China, Turkey, and India have been diversifying their reserves away from the U.S. dollar, particularly after the West froze Russian dollar assets following its invasion of Ukraine. JPMorgan estimates that central banks bought over 1,000 metric tons of gold last year. The People’s Bank of China ended its longest-ever buying spree in May, while India’s central bank increased its gold reserves in June by the most in nearly two years.
Amid ongoing recession fears, which could boost demand for safe-haven assets like gold and prompt deeper Fed rate cuts, investor Mark Spitznagel, founder and CIO of Universa Investments, warned Fortune of a forthcoming recession, predicting that the largest market bubble in history is set to burst this year.
