(Kitco News) – Gold could see a near-term pullback following the first Fed cut, but the future looks very bright for bullion heading into 2025, according to the latest research and analysis from Goldman Sachs, UBS, TD Securities, and Bank of America.
Goldman Sachs believes gold prices may see near-term declines if the Federal Reserve chooses a 25-basis-point cut this afternoon rather than a larger 50 bps reduction, but they still expect the precious metal to rally to fresh record highs afterward as flows into bullion-backed exchange-traded funds increase.
“Fed rate cuts are poised to bring Western capital back into gold ETFs, a component largely absent of the sharp gold rally observed in the last two years,” wrote analysts Lina Thomas and Daan Struyven in a research note.
“While we see some tactical downside to gold prices under our economists’ base case of a 25-basis-point Fed cut on Wednesday, we expect a gradual boost to ETF holdings — and thus gold prices — from the Fed’s easing cycle,” they said.
“Since ETF holdings only increase gradually as the Fed cuts, this upside is not yet fully priced in,” they added.
The analysts reaffirmed Goldman’s forecast for the yellow metal to reach $2,700 an ounce in the spot market by early 2025.
UBS analysts are also maintaining their bullish outlook on gold ahead of the Fed’s easing cycle kickoff, and like Goldman Sachs, they see the yellow metal trading at $2,700 per ounce, though they expect it could take until mid-2025 to reach that level.
They noted that gold was up 23% in 2024 (now nearly 25% at the time of writing) driven by lower U.S. yield expectations and diversification out of U.S. dollars by central banks.
They added that gold has also been supported by the European Central Bank's rate cuts, but pointed to trimmed expectations of the scale of the Fed’s expected cuts as a bit of a counter to this. UBS sees the yellow metal also benefiting from positive flows into physically backed gold ETFs, with August marking the fourth straight month of inflows.
TD Securities’ senior commodity strategist Daniel Ghali said that the timing of gold's rise to new all-time highs struck several market watchers as odd, but the latest CFTC positioning data is helping to inform the precious metal’s price action,
“A few proprietary traders, family offices and macro funds joined the dark side over the prior week, initiating some shorts ahead of the highly anticipated start of the Fed's cutting cycle,” Ghali said. “Meanwhile, our gauge of macro funds' net positioning nudged lower over the last week, which alongside max'ed out readings for CTA positioning and concurrent liquidations from Shanghai traders, reveals that the latest leg of the rally may well have been associated with a short-squeeze.”
And Bank of America analyst Jason Fairclough said that after trading above $2,600 per ounce even before the Fed began cutting, he expects the easing cycle to drive gold prices to $3,000 per ounce by 2025.
BofA has been among the most bullish of the major banks in its gold price predictions, and last month the bank advised investors to follow the example set by central banks.
“Do what central banks are doing... buy gold,” Bank of America analysts said. “Gold is now the second-largest reserve asset (16.1% vs. 15.6% for the Euro) and has one of the lowest correlations to stocks across asset classes.”
Bank of America doesn’t expect the S&P 500 to benefit as the Federal Reserve looks to kick off its new easing cycle next month. The analysts note that an equity selloff could happen sooner rather than later.
“History shows the first Fed cut precedes more cash inflows in a ‘soft’ landing, with bonds being the likely winner if it’s ‘hard,’” they said. “Five out of six Powell Jackson Hole speeches saw the S&P 500 drop by 7.5% on average in the next three months.”
Looking at U.S. monetary policy, Bank of America said that even though the Fed is projected to deliver the third-largest cumulative rate reduction in a single year in 2024, even more may be necessary as the U.S. government debt continues to grow and the U.S. commercial real estate market needs to roll over $1.5 trillion of CRE loans this year and next.
Spot gold last traded at $2,578.28 for a gain of 0.34% on the daily chart.
