Gold (GC=F) hovered near all-time highs on Thursday, supported by a large Fed rate cut and a weaker dollar. Analysts expect precious metal prices to rise further.
Gold futures rose to just above $2,600 after setting a new record in pre-trade, just after the Federal Reserve announced a 50 basis point interest rate cut.
Precious metals watchers said the cuts should support price gains into next year amid a weak dollar.
The US dollar (DX-Y.NYB) is measured against a basket of currencies and traded above $100 on Thursday. The index has been on an overall downward trend since June.
“By lowering interest rates more than expected, the Fed indirectly opens the door to an increase in the money supply, leading to a second wave of inflation,” said Alex Evkarian, chief operating officer and co-founder of precious metals dealer Allegiance. “We risk a wave and further weakness in the dollar.” gold.
Precious metals are priced in dollars, making them more accessible to foreign buyers as the currency weakens. Low interest rates also make gold attractive to investors because it has a low annual yield.
Analysts at Goldman Sachs recently argued that when the Fed lowers interest rates, yellow bullion prices typically rise because money flows into gold-backed exchange-traded funds (ETFs).
“We expect the Fed’s easing cycle to lead to a gradual increase in ETF holdings and, in turn, gold prices,” the analysts said.
The firm projects a $2,700 price target by early 2025 as Western capital flows into ETFs, central banks continue to buy up precious metals, and investors seek hedges against geopolitical conflicts and recession risks. I am doing it.
A pile of gold bars. (Getty Images) (Filograph via Getty Images)
Futures markets were pricing in a 50 basis point rate cut ahead of Wednesday’s Fed announcement.
Historically, gold prices have soared following Fed rate cuts, such as during the 2008 financial crisis and the 2020 pandemic.
Gold has risen about 25% since the beginning of the year as central banks bought up the precious metal at record levels.
Ines Ferre is a senior business reporter at Yahoo Finance. Follow her on X @ines_ferre.
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