PETALING JAYA: Gold prices have the potential to rise with indications of a US Federal Reserve (Fed) interest rate cut in September.
Economists and commodity strategists are generally bullish on the non-yielding bullion it tends to shine in a low interest- rate environment.
The US economy gained strength and grew 2.8% in the second quarter, topping forecasts of 2% growth, following the sluggish 1.4% growth in the first quarter.
This could set the stage for the Fed to undertake its first rate cut which spells good news for the precious metal.
Currently, the federal funds rate is at the range of 5.25% to 5.5%.
A lower interest rate will basically reduce the opportunity cost of holding gold and spark higher demand for it.
Also, the move by India to slash import duties on gold and silver could spur further demand for gold in the world’s second-biggest bullion consumer.
Habib Group executive chairman Datuk Seri Meer Habib
Jeweller Habib Group executive chairman Datuk Seri Meer Habib told StarBiz the price of gold has the potential to exceed US$2,500 per ounce if the Fed lowers the current interest rate.
“Fed chair Jerome Powell has indicated a near-term rate cut because of the confidence that inflation is heading towards the US central bank’s 2% target. The market is already pricing in a September rate cut,” he said.
The outlook for gold should be on the positive side because the market has indicated two interest rate cuts. However, the US market is not the sole factor influencing gold prices.
Meer Habib said the other factors include the Ukraine-Russia geopolitical crisis and tensions in West Asia.
As for the Malaysian market, he said the confidence in gold is consistent and it has seen an increase in activity for both sales and purchase back. The latter refers to investors who had bought gold bars and are cashing in for profit.
Gold prices are expected to climb to US$2,500 per ounce by the end of 2024, according to JP Morgan Research.
The prediction is made on the assumption of a Fed cutting cycle commencing in November 2024, pushing gold prices to new nominal highs, it said.
UCSI University Malaysia associate professor of finance Liew Chee Yoong
Meanwhile, UCSI University Malaysia associate professor of finance Liew Chee Yoong said the outlook for the gold market is generally positive and prices could reach between US$2,421 and US$2,651 per ounce by year-end.
He said continued economic uncertainty, including inflation concerns and geopolitical tensions, would drive investors towards gold as a safe-haven asset.
If the Fed eases its interest rate, it may lead to higher gold prices due to the reduced opportunity costs of holding a non-yielding asset like gold.
He said steady demand from central banks and consumers, especially in emerging markets, would continue to support gold prices.
“Gold continues to be a crucial part of diversified investment portfolios due to its role as a hedge against inflation and economic instability.
“While the gold market is expected to perform well in 2024, investors should stay informed about global economic trends and central bank policies that could impact prices. Overall, a cautious yet optimistic approach to gold investment is advisable in 2025,” said Liew, who is also a research fellow at the Centre for Market Education.
Bank Muamalat (M) Bhd chief economist Mohd Afzanizam Abdul Rashid
Bank Muamalat (M) Bhd chief economist Mohd Afzanizam Abdul Rashid said gold prices appeared to be at elevated levels on anticipation of the US rate cut.
The coefficient of correlation between gold prices and the 10-year US Treasury yield.
“If the rate cut thesis does not materialise, it would severely impact gold prices. The expectation is running high with US disinflation trend becoming more visible.
“Gold prices are quite toppish this year. They may experience some correction along the way as traders are tempted to lock in some gains. However, gold has built quite a strong foundation at US$2,300,” Afzanizam said.
However, HSBC Global Research chief precious metals analyst James Steel said the move by India to reduce its import tax on gold could resume the yellow metal’s downside if this does not generate more buying interest.
“Given how important this development is, the global gold market rally remains modest. This means either the market has not fully responded to the news or other factors are at work. Other physical gold markets, including China, are sluggish.
“If we do not see the US gross domestic product and personal consumption expenditures data that strongly support rate cuts, we could see a resumption in gold and silver weakness,” Steel said.
ANZ commodity strategist Soni Kumari was quoted by Reuters last Friday as saying she remained upbeat on gold.
“Prices had scaled to record highs last week on bets of a September US rate cut. When prices rally in a short span, you see a correction, but we remain bullish on gold,” she said.
China’s physical demand for gold should pick up especially given the challenges in its property and equity markets, she noted.
“Meanwhile, India’s demand for gold is likely to rise while moving into the fourth quarter which is traditionally a robust seasonal period for gold demand,” she added.
The news agency also quoted Sugandha Sachdeva, founder of SS WealthStreet, a New Delhi-based research firm, as saying: “With near-term support in sight at the US$2,280 mark, we believe gold can hit US$2,680 by year-end.
“The US presidential election and the political uncertainty surrounding it, along with the US-China trade tensions, are key triggers that could lead to a significant rebound in prices.”
Gold prices hit a record high of US$2,483.60 on July 17, before corrections set in.
At press time, gold rose by 7.2% to trade at US$2,371.15 per ounce.
