(Kitco News) – The gold rally is only just beginning, and the most eagerly-anticipated U.S. rate cut in decades will drive prices to new all-time highs this month, according to Ewa Manthey, Commodities Strategist at ING.
In the bank’s monthly update, Manthey noted that gold has been one of the best-performing commodities this year, gaining over 21% so far in 2024.
She pointed out that the gains were driven primarily by expectations of an interest rate cut from the Federal Reserve, strong central bank buying and robust Asian purchases, along with safe-haven demand due to heightened geopolitical risks and U.S. election uncertainty.
Manthey believes the imminent start of the Fed’s rate-cutting cycle will be the next strong and sustained driver of gold’s price action.
“At the recent Jackson Hole conference, Fed Chair Jerome Powell made it clear that the Federal Reserve would cut interest rates on 18 September, stating that ‘the time has come for policy to adjust. The direction of travel is clear,’” she said.
“Gold prices have gained after Powell affirmed expectations the US central bank will soon start cutting interest rates,” Manthey added. “The question for the gold market now is the pace at which the Fed will ease its policy.”
She noted that the latest US jobs data report was mixed, which muddied the ongoing debate over how big the first interest rate cut will be. “US economist believes the central bank will opt for a 50bp move, but it’s a close call,” she said.
Gold-backed ETF demand has also seen a resurgence over the summer. “Global gold ETFs saw inflows four months in a row with all regions recording positive flows and Western funds leading the way in August,” Manthey wrote.
“Investor holdings in gold ETFs generally rise when gold prices gain, and vice versa,” she said. “However, gold ETF holdings have been in decline for much of 2024, while spot gold prices have hit new highs. ETF flows finally turned positive in May.”
Manthey pointed out that COMEX total net longs have also continued to climb, “seeing a 17% month-on-month rise by the end of August, and the highest month-end level since February 2020.”
And despite the yellow metal hitting new all-time highs in July, central bank gold demand strengthened further during the month. “Reported net purchases by central banks more than doubled to 37 tonnes in July,” she wrote. “This represents a 206% month-on-month increase and the highest monthly total since January when central bank purchases totalled 45 tonnes.”
Manthey noted that the National Bank of Poland was the biggest buyer during the month, followed by the Central Bank of Uzbekistan and the Reserve Bank of India.
“In 2023, central banks added 1,037 tonnes of gold – the second-highest annual purchase in history – following a record high of 1,082 tonnes in 2022,” she said. “Looking ahead, we expect central bank demand to remain strong amid the current economic climate and geopolitical tensions.”
ING believes that the first Fed rate cut will be enough to drive gold prices to new all-time highs. “The US presidential election in November will also continue to add to gold's upward momentum through to the end of the year, in our view,” she said. “Geopolitics will also remain one of the key factors driving gold prices. The war in Ukraine and the Middle East and tensions between the US and China suggest that safe-haven demand will continue to support gold prices in the short to medium term. Central banks are also expected to keep adding to their holdings, which should offer support.”
ING now sees spot gold averaging $2,580 in the fourth quarter, resulting in an annual average price of $2,388 per ounce in 2024. “Gold’s upward momentum will continue next year with 2025 prices averaging $2,700,” she said.
Spot gold shot up to a session high of $2,515.42 at the North American open before pulling back to the $2,500 support level. It last traded at $2,504.83 per ounce for a loss of 0.07% on the daily chart
