The gold price could rise to $2,600 per ounce if the US interest rate cut looms

The price of gold could rise to $2,600 an ounce after hitting a new record high as traders increasingly anticipate the US Federal Reserve will cut interest rates next month.

On Sunday, spot gold prices broke the $2,500 per ounce mark for the first time, continuing a rally that has seen the metal gain $613, or 32%, over the past 12 months. Analysts predict further increases in the coming year, driven by expectations of a shift in US monetary policy.

The potential for lower interest rates is seen as a bullish factor for gold, which becomes more attractive compared to other asset classes such as bonds or stocks, which tend to yield returns. UBS, the Swiss investment bank, has predicted that gold prices could reach $2,600 per ounce by the end of 2024. The market is now closely watching a key speech by US Federal Reserve Chairman Jerome Powell at the annual Jackson Hole symposium on Friday, where any hint of an impending rate cut could further fuel gold’s rise.

Powell is expected to outline his economic outlook in what will be his first public appearance since recent turbulence in global stock markets, caused by weaker-than-expected US jobs data and growing concerns about a possible recession. According to Tom Price, a commodities analyst at Panmure Liberum, the market expects Powell to signal a shift from an “inflation-focused” approach to a “growth management strategy.” This could mean keeping interest rates stable or lowering them slightly to support economic growth, especially in light of recent pressures in the US labor market.

Gold prices have surpassed $2,000 per ounce only once before, in the immediate aftermath of the Covid-19 pandemic in 2020. RBC Capital, another investment bank, has already raised its gold price forecast to $2,480 by the end of this year and $2,600. by mid-2024, with gold forecast to remain above $2,000 per ounce until at least 2028.

Gold’s reputation as a “safe haven” has been further strengthened by ongoing conflicts involving Russia, Ukraine and the Middle East. Despite current high prices, analysts believe that any escalation of these conflicts, or rising tensions between China and Taiwan, could push gold prices even higher. Furthermore, the upcoming US presidential election could bring further market volatility, increasing gold’s appeal.

China’s central bank has also played a major role in the rally, aggressively increasing its physical gold reserves over the past two years as part of a strategy to diversify its holdings. The People’s Bank of China was the world’s biggest buyer of gold in 2023, with net purchases of 7.23 million ounces, the most by China in at least 46 years, according to the World Gold Council. This large-scale purchasing program has been a key driver of gold’s upward momentum and reflects broader global uncertainties.