Gold prices are maintaining their strength near recent record highs above $2,600 per ounce, buoyed by growing market expectations that the Federal Reserve will implement significant interest rate cuts this week. Looking ahead, ANZ analysts forecast further upward momentum for gold, driven by renewed investment demand.
In their latest analysis, Soni Kumari, Commodity Strategist, and Daniel Hynes, Senior Commodity Strategist at ANZ, highlighted that gold’s recent technical breakthrough above $2,550 an ounce is likely to sustain bullish investor interest as the Federal Reserve approaches its rate-cutting phase.
The analysts project that gold could reach $2,900 an ounce by the end of next year, as renewed investment demand compensates for weaker support seen earlier in 2024. “Falling real rates and a weakening U.S. dollar are expected to enhance the inverse relationship with gold, bolstering investment demand as the cost of holding gold decreases,” the analysts explained. They anticipate a rebound in strategic investments, which should drive prices higher.
As the market anticipates an aggressive rate cut from the Federal Reserve on Wednesday, the CME FedWatch Tool indicates a 65% probability of a 50-basis point reduction. However, many analysts believe this expectation may be overly optimistic, with a more common forecast of a 25-basis point cut accompanied by dovish signals for further reductions through 2025.
Kumari and Hynes advised investors to focus on the broader trajectory of interest rates rather than a single rate cut. They suggested that a 100-basis point cut could result in 200-250 tonnes of net inflows into exchange-traded funds (ETFs) in the coming months, with a cumulative 200-basis point reduction potentially increasing inflows by up to 500 tonnes.
ANZ remains optimistic about gold, noting that central banks are likely to continue their buying spree. The analysts have revised their estimates for central bank purchases to 950 tonnes in 2024 and 850 tonnes in 2025. Although these figures are lower than in previous years, they still represent significant demand.
Despite this bullish outlook, ANZ cautioned about potential short-term volatility in the gold market. “While strategic ETF investments could drive gold prices higher, speculative positions appear stretched, with shorts nearly covered and longs at 2020 levels. These crowded positions might pose a challenge for prices in the short term,” the analysts warned.
Nevertheless, they expect gold prices to trend towards the $2,640-$2,650 per ounce range, provided they remain above $2,550. Should prices drop below $2,540, it could signal a false breakout, leading to potential technical selling and a retreat to the next support level at $2,460 per ounce.
