Valuable hedge: A gold crown on display in Hong Kong, China. The weakening US dollar, due to Fed interest rate cuts, should be the next big driver of gold’s ascent. — Bloomberg
PETALING JAYA: Gold prices are likely to continue their upward trajectory to surpass the current all-time high, according to experts.
The precious metal has been buoyed by a weakening US dollar, dovish US Federal Reserve (Fed) monetary policy, and increased global demand driven by both geopolitical and economic factors.
At press time, spot gold rose to US$2,589 an ounce from US$2,506 about a week ago.
SPI Asset Management managing director Stephen Innes said “as the dollar weakens due to Fed interest rate cuts, this should be the next big driver of gold’s higher price.” With about 240 basis points of cuts priced into the Fed’s curve, he said that a rise in US unemployment rate could prompt further cuts of at least 100 basis points in 2024.
After the initial cut, Innes expects rates to drop further, leading to a significant weakening of the greenback.
“Gold could rally sharply and I wouldn’t be surprised to see it hit US$2,600 an ounce by year-end and possibly US$2,700 early next year,” he told StarBiz.Innes explained that as rates decline, the opportunity cost of holding the non-yielding asset diminishes, making gold more attractive.
“A dovish shift could weaken the US dollar, supporting higher gold prices,” he added.
Similarly, WealthFort International Sdn Bhd founder Choo said the Fed’s rate-cut would continue to support gold’s price momentum.
“With the Fed maintaining a dovish monetary policy, we expect the US dollar to face further weakening,” said Choo, who is also a director at the investment education company.He explained that while higher interest rates typically dampen gold’s appeal as a non-yielding asset, the anticipated rate cuts by the Fed could reverse that trend.
“Upcoming rate cuts by the Fed are expected to attract Western investors back into the gold market,” Choo said, anticipating a boost in demand following a period of Western investors’ absence during gold’s recent rallies.
Heightened geopolitical tensions and economic uncertainty in China are likely to continue driving demand for gold as a safe-haven asset.
“The political conflicts – whether in Europe, the Middle East, or Asia – could increase demand for safe-haven assets like gold.
“Historically, gold rallies during periods of global uncertainty,” SPI Asset Management’s Innes said.
An economic slowdown in China is also bolstering gold demand.
According to him, central banks, particularly in emerging markets like the BRIC nations, which comprised Brazil, Russia, India, China, South Africa, Iran, Egypt, Ethiopia, and the United Arab Emirates, have been accumulating gold to diversify their reserves.
On central bank gold purchases, Choo noted that they have increased purchases by about three times the previous rate since Russia’s invasion of Ukraine in 2022.
The trend is likely to continue as global concerns over US financial sanctions grow, alongside the increasing burden of US sovereign debt.
“Gold remains a valuable hedge for portfolios, especially against risks such as tariffs and worries about debt sustainability.
“The weakening of the US dollar since October 2022 is also a key contributor.
“Typically, when the US dollar strengthens, gold prices tend to fall and when the US dollar weakens, gold prices tend to rise,” Choo explained, noting the inverse relationship between the two.
