(Kitco News) - While gold is ending the week with another record high, the journey hasn't been smooth. December gold futures last traded at $2,647.40 an ounce, up more than 1% from last week.
As expected, gold prices saw a sharp rally after the Federal Reserve cut interest rates by 50 basis points and signaled that rates could drop to 3% by mid-2026. However, Federal Reserve Chair Jerome Powell quickly tempered the rally, warning investors that the central bank is not in a hurry to drastically lower rates.
During his press conference, Powell stated that the committee envisions an orderly decline in interest rates, with the neutral rate still remaining well above 0%, unlike the levels seen during the pandemic and the Great Financial Crisis.
Analysts emphasized that Powell used the word "recalibrated" nine times during his hour-long press conference.
“If you look at the SEP, you'll see it's a process of recalibrating our policy stance away from where we were a year ago, when inflation was high and unemployment low, to a position more appropriate to where we are now and where we expect to be," Powell explained. "There is nothing in the SEP that suggests the committee is in a rush. This process evolves over time.”
The Federal Reserve's easing cycle is expected to be bullish for gold, but the market is unlikely to see a parabolic rise. Following the Federal Reserve’s decision, some analysts have begun speculating about a $3,000 price target. While some believe this could happen by year-end, the growing consensus is that 2025 is the more likely timeline.
Reacting to the Federal Reserve's decision, George Milling-Stanley, Chief Gold Strategist at State Street Global Advisors, said there's a strong possibility that gold could reach his year-end bullish target of $2,700 an ounce.
“I think people on Wall Street calling for gold to hit $3,000 by year-end are being a bit optimistic,” he said. “I don't see that happening within the next three or four months. But it’s a realistic possibility for next year, provided nothing disrupts the expected interest rate trajectory.”
Regardless of the exact price target, analysts agree that gold will play an increasingly important role in investment portfolios going forward. This week, analysts at Société Générale updated their multi-asset portfolio, increasing their gold holdings from 5% to 7%, making it their only commodity position. They noted that gold is the sole commodity currently thriving.
“A global monetary easing cycle and central banks' gold purchases, particularly from non-Western-aligned countries, are driving gold's rise,” the analysts wrote.
At the same time, the Fed’s monetary policy is not the sole driving force behind gold’s momentum. Some analysts argue that a perfect storm is brewing for gold, as central banks lower interest rates and governments continue to increase sovereign debt.
With less than 50 days remaining until the U.S. Presidential election, many analysts surprisingly note that gold stands to benefit regardless of who becomes the next leader of the free world.
Both candidates are expected to increase deficits, which will further erode the U.S. dollar’s purchasing power.
While gold may experience some near-term volatility due to elevated speculative bullish positioning, the long-term uptrend remains intact.
That’s all for this week. Have a great weekend.
