The precious metals analyst of the French Foreign Trade Bank pointed out that most of the Fed's rate cuts this year have already been priced in, and investors may see gold prices rise more rapidly next year, especially in the second half of the year.
In the first half of this year, Asian investors, led by Chinese consumers, have pushed the gold price to a historic high. Now, an international bank predicts that Western investors will take over and further push the gold price to record levels.
Last week, Bernard Dahdah, a precious metals analyst at French trade bank Natixis, released his latest price forecast. He expects the average price of gold in 2025 to be around $2,600 per ounce.
He stated in his report, "After a strong start to the year, the Chinese market has now cooled down. One indicator of this is the Shanghai gold premium, which has mostly been at a discount in August. At the same time, the price has risen almost 9% since July, and gold ETFs backed by physical holdings (mostly held by Western investors) have finally started to grow again after a year of outflows."
Dahdah added that with the support of a weak U.S. dollar and declining Treasury yields, market drivers are returning to traditional fundamentals, and he remains optimistic about the outlook. However, he pointed out that the scope for interest rate and yield declines may be limited, at least for the remainder of 2024.
Following disappointing job data in the United States, with fewer job vacancies than expected in July, market expectations for a 50-basis-point rate cut by the Federal Reserve surged. According to the CME Group's FedWatch tool, the market currently sees a 45% chance of a substantial rate cut at the end of this month.
However, Natixis expects the Federal Reserve to proceed slowly with rate cuts.
He said, "Our forecast differs from the consensus in that we don't believe the Fed will see economic conditions as bad enough to warrant rapid and consecutive rate cuts, and officials will still be concerned about sustained inflation above target. Although the job market is slowing down, it is normalizing at a pace consistent with the target inflation rate and has not fallen into pronounced weakness. This dynamic will allow the Fed to gradually ease policy, cutting rates by 25 basis points in September and another time in December, for a total of 50 basis points by 2024."
Dahdah added that Credit Agricole CIB expects the Fed's policy interest rate to drop to 3.25% by 2025, which will keep the gold price well supported.
He said, "Our view is that for the rest of this year, gold prices will hover around current levels, as most of this year's rate cuts are already priced in. In other words, next year we may see prices rise more rapidly, especially in the second half of the year."
Joe Cavatoni, Senior Market Strategist for the Americas at the World Gold Council, stated that gold has received support from many factors, including geopolitical concerns and strong buying from central banks.
Cavatoni said, "These are all the key elements that make up the amazing picture of the gold market, central bank purchases are very impressive and very fundamental."
Due to the high price of gold, jewelry demand is currently under pressure. Demand from the technology industry is growing but still relatively small. Cavatoni stated that the World Gold Council does not predict gold prices, but he has seen many analysts expecting gold prices to be between $2700 and $3000.
He said, "In terms of the overall trend of the gold market, we believe there are very compelling reasons to support these estimates."
Editor/Rocky