KEY POINTS
- Goldman Sachs predicts gold will rise to $2,700 an ounce by early next year.
- Analysts expect Fed rate cuts to trigger increased ETF inflows, driving gold prices.
- Precious metals, including silver, have seen significant gains as central banks purchase more.
Gold may experience a slight short-term setback, but surging inflows into bullion-backed exchange-traded funds will help the metal rise to a record, predicts Goldman Sachs Group Inc.
The Federal Reserve can decide to decrease interest rates by 25 basis points this week.
Goldman Sachs forecasts higher gold prices despite Fed policy
The bank has reiterated its prediction that gold will rise to $2,700 an ounce by early next year.
Analysts Lina Thomas and Daan Struyven stated in a report that “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.”
According to Mining.com, one of the primary commodities with the best performance this year has been precious metal, which has risen by about 25% and broken many records as central banks increase their purchases and speculators anticipate the Fed’s shift to monetary easing.
Whether the US central bank will begin its easing cycle this week with a half-point decrease or, as Goldman Sachs anticipates, a more moderate 25-basis-point cut, investors are still split on the issue.
“Our economists’ base case of a 25 basis point Fed cut on Wednesday shows some tactical downside to gold prices, but we expect a gradual boost to ETF holdings — and thus gold prices — from the Fed’s easing cycle,” the experts stated.
Speaking further, “This upside is not yet fully priced in, as ETF holdings only increase gradually as the Fed cuts,” they continued.
ETF inflows play a key role in gold’s future performance
According to a Bloomberg tally, global holdings of ETFs backed by bullion have increased recently after falling to their lowest level since 2019. This was the case in mid-May. Even with the continuous increase in gold prices, they are still lower year-to-date and roughly 25% below the peak reached in 2020 during the epidemic.
Inflows “reduce the physical supply of gold available to the market,” according to researchers, because ETFs are backed by bullion.
The price of spot gold was recently slightly off at $2,585 per ounce. For the seventh day in a row, silver increased to $31 an ounce, heading toward its longest winning streak since 2019. Silver can follow changes in the more costly precious metal.
