Gold’s run set to continue as US$2,500 milestone fuels predictions of further gains
Analysts generally agree that gold is still on its way up after it nearly reached US$2,500 over the weekend.
With growing confidence that US rates are headed lower, gold market followers are tipping it to rise further.
J.P. Morgan recently forecast an average price of $2,600/oz by 2025, while others suggest that level may be reached much earlier on the back of disappointing US housing market results and the expectation that the US Fed may need to implement multiple interest rate cuts.
US housing concerns
ANZ Senior commodity strategist Daniel Hynes noted that US housing starts fell by 6.8% in July to 1.238 million units, down from the 1.1% increase in June to their lowest level since 2020.
Mr Hynes said this figure added to concerns over the economy’s strength, especially after recent softer inflation and labour reports.
“This, in turn, fuels deeper cuts by the Fed and underpins the yellow metal, as lower interest rates generally reduce the opportunity cost of holding non-yielding bullion,” he wrote in his daily commodity wrap.
‘Unstoppable run’
“Gold has been on an unstoppable run since October last year, surging from near the US$1,800 level to score back-to-back all-time record highs – not once, not twice, but on multiple occasions this year,” said Phil Carr, Head of Trading at The Gold & Silver Club on FXEmpire.
“The precious metal is up over 26% since mid-February.”
“But here’s where it gets even better – gold prices have now chalked up a whopping gain of more than 38% since October.”
Diversification benefits
Meanwhile, the World Gold Council says in a new report that it believes gold can provide diversification benefits for Australian portfolios in the face of rising volatility.
The newly released study suggested that, unlike bonds, gold has demonstrated a consistently low correlation with Australian equities.
“This is mainly because gold’s valuation is not determined by any one country, thanks to its diverse sources of demand – which spread across regions and sectors – and supply,” the report noted.
Top performer
“Contrary to the perception that ‘gold generates no returns,’ gold has, in fact, been the top performer among major global and Australian assets so far in 2024.”
“Strong global central bank buying, robust Asian investment demand and elevated geopolitical risks have combined to support gold’s performance in H1.”
“It is also worth noting that gold has generated positive returns every year since 2016, averaging 10% per year in Australian dollars.”
The report concluded that gold offers a low correlation with local equities and attractive return prospects while acting as an effective hedge against geopolitical risks.
“As such, gold is an ideal asset to enhance return and reduce risk in Australian portfolios.”