Gold prices are expected to continue their upward trend, potentially surpassing current all-time highs. This rise is attributed to several factors, including a weakening US dollar, a dovish monetary policy by the US Federal Reserve (Fed), and increased global demand driven by geopolitical and economic uncertainties. Lower interest rates reduce the opportunity cost of holding gold, making it a more attractive investment. A dovish shift by the Fed would likely weaken the US dollar further, providing more support for higher gold prices. Similarly, Choo, founder of WealthFort International Sdn Bhd, agrees that the Fed's rate cuts will continue to fuel the upward momentum of gold prices. He notes that while higher interest rates typically make gold less appealing as a non-yielding asset, the anticipated cuts will likely reverse this trend and attract Western investors back into the gold market.
Increased geopolitical tensions and economic uncertainties, particularly in China, are also boosting gold's status as a safe-haven asset. Political conflicts around the globe and economic slowdowns, especially in China, are expected to sustain the demand for gold. Innes highlights that central banks in emerging markets, including the BRIC nations (Brazil, Russia, India, China, South Africa, Iran, Egypt, Ethiopia, and the UAE), have been buying more gold to diversify their reserves. Since Russia's invasion of Ukraine in 2022, central banks have tripled their gold purchases.
The concerns over US financial sanctions and the growing burden of US sovereign debt have led central banks to increase their gold holdings. This trend is likely to persist, given gold's role as a valuable hedge against risks like tariffs and debt sustainability concerns. The weakening of the US dollar since October 2022 has been a key factor in the rise of gold prices, as gold and US dollar has historically an inverse relationship.
As of now, spot gold has increased to US$2,589 per ounce, up from US$2,506 just a week ago. Stephen Innes, managing director of SPI Asset Management, believes that the weakening US dollar, driven by anticipated Fed interest rate cuts, will be a key factor in further driving gold prices. He suggests that if the US unemployment rate rises, the Fed could implement additional rate cuts of at least 100 basis points in 2024. Innes forecasts that gold prices could reach US$2,600 by the end of this year and possibly US$2,700 early next year.
