Source: Caixin.
Author: Zhao Hao.

In early European trading on Tuesday (September 24), the spot gold price rose more than $10 in the short term, briefly breaking through the $2,640 level to reach a peak of $2,640.15 per ounce, setting a new historical high.

At the time of publication, the spot gold price has slightly fallen to $2,633 per ounce, with a cumulative increase of over 27% year-to-date, outperforming the nearly 20% rise in the S&P and Nasdaq. Meanwhile, the COMEX gold futures continuous price also hit a historical record, reaching a peak of $2,664.6 per ounce intraday.

UBS group analysts wrote in a report released on Monday that the continuously hitting new highs in gold prices can still shine, "Although the record high price may make some investors hesitate, we believe several reasons can prove that gold still has room for further growth."

The first reason mentioned in the report is that the Fed will further ease its policy. On that day, several Fed officials also confirmed to the public that there may be more opportunities for interest rate cuts in the future, pointing out that the current policy rate is still putting significant pressure on the US economy.

Last week, the Fed lowered the target range for the federal funds rate by 50 basis points to a level between 4.75% and 5%. The released "dot plot" shows that 19 policymakers as a whole believe that by the end of the year, there will be an additional cumulative 50 basis point cut on top of the current basis.

Chicago Fed President Gursby said, "In the next 12 months, as we move interest rates close to the neutral level, we have a long way to go." Minneapolis Fed President Kashkari expects the Fed to cut rates by 25 basis points at each of the remaining two policy meetings this year.

The CME's "FedWatch" tool shows that the market expects an equal probability of a 25 basis point and a 50 basis point rate cut at the central bank's November meeting; the market also predicts a total of 75 basis points cut by the end of the year, which is much more dovish than the dot plot.

On the data side, the s&p global released initial US manufacturing PMI for September on Monday, lower than expected, indicating that the contraction in manufacturing sector may further expand. Later this week, the US will release personal consumption data, with the PCE (Personal Consumption Expenditures) inflation data being the most important for the Fed.

UBS report commented that the Fed's shift towards monetary easing has reduced the opportunity cost for investors holding non-yield assets like gold, increasing people's enthusiasm for this precious metal. "As cash roi is eroded by a low interest rate environment, more funds may ultimately flow into assets such as gold."

UBS cited a second reason as "geopolitical tensions are worsening": conflicts in the Middle East and between Russia and Ukraine remain unresolved, enhancing the necessity of gold as a geopolitical hedging tool. Last week, Ukraine attacked two Russian ammunition depots.

Yesterday, the Israeli Defense Forces announced a large-scale attack on Hezbollah targets inside Lebanon. The Lebanese Ministry of Public Health issued a statement saying that Israel's ongoing air strikes in multiple areas of Lebanon have resulted in 492 deaths and 1,645 injuries.

UBS also mentioned that demand for gold from investors and central banks remains strong, with official purchases currently accounting for about one-quarter of total gold demand, roughly twice that before 2022. With the Fed's rate cuts being implemented, demand for gold through ETFs seems to be accelerating.

"Although the price of gold is rising, we believe that gold's hedging properties are still attractive." UBS concluded, "Therefore, we continue to view gold as the best investment in our global strategy, with a target price of $2,700 per ounce by mid-2025."

Editor/Jeffy