US interest rate cuts increase gold’s appeal
Gold’s rally was driven by the Federal Reserve’s recent decision to cut interest rates by 50 basis points, with forecasts pointing to further cuts through the end of the year and into 2025. As interest rates fall, the opportunity cost of holdings of non-profitable assets such as gold are increasing. reduced, increasing gold’s appeal as a safe haven during economic uncertainty.
“Gold is significantly undersupplied in Western markets and remains one of the few assets that can counter fiscal threats,” said Ryan McIntyre of Sprott Asset Management. He emphasized that in addition to interest rate cuts, the continued decline of the US dollar and uncertain fiscal policies in Western economies are increasing interest in gold.
With the US dollar weakening, non-dollar investors are finding gold more attractive, further supporting the metal’s rally. Gold is up over 26% so far in 2024, buoyed by geopolitical tensions in the Middle East and Europe, adding layers of uncertainty that traditionally benefit gold.
Demand for retail is declining in Asia despite price increases
While institutional demand remains robust, high gold prices have dampened retail demand in Asia, where price sensitivity is higher. China’s recent freeze on gold imports from Switzerland – the first in more than three years – alongside discounts in India, underlines the pressure on demand in these major consumer markets.
Despite weaker demand from Asia, financial analysts remain optimistic about the future of gold. “Gold could rise to $2,700-$2,800 in the next 12 months,” says Capital.com’s Kyle Rodda, citing a buy-the-dip sentiment that continues to dominate the market.
Market forecast: bullish outlook
With interest rate cuts likely to continue and fiscal uncertainties persist, the outlook for gold remains bullish. Technical indicators suggest that if gold maintains its support above $2,546.86, a push towards $2,650-$2,700 is likely. Traders should look for dips as buying opportunities, especially as the dollar continues to weaken. Longer term, gold could test the highs of $2,800 if economic and geopolitical risks remain high.