Gold (GC=F) held near record highs on Thursday, supported by the Federal Reserve’s massive rate cut and a weakening dollar. Analysts expect the precious metal to rise further.
Gold futures rose to trade just above $2,600 after hitting fresh records in the previous session, immediately after the Federal Reserve announced a 50 basis point rate cut.
Precious metals watchers said the size of the cut should support higher prices heading into next year as the dollar falls.
The US dollar (DX-Y.NYB), measured against a basket of currencies, traded above 100 on Thursday. The index has been on a general downward trend since June.
“By cutting rates more than expected, the Fed is indirectly opening the door to an increase in the money supply, risking a second wave of inflation and a further weakening of the dollar,” said Alex Ebkarian, chief operating officer and co-founder of the precious metals dealer. Golden loyalty.
The precious metal, which is priced in dollars, becomes more affordable for foreign buyers as the currency weakens. Lower rates also make gold attractive to investors as it does not offer an annual return.
Goldman Sachs analysts recently argued for higher bullion prices as capital typically flows into gold-backed exchange-traded funds (ETFs) when the Federal Reserve cuts rates.
The analysts wrote: “We expect a gradual boost to ETF holdings – and hence gold prices – from the Fed’s easing cycle.”
The firm predicts a target price of $2,700 by early 2025 as Western capital flows into ETFs, central banks continue to accumulate the precious metal and investors seek a hedge against geopolitical conflicts and recession risks.
Futures were pricing in a 50 basis point cut ahead of the Fed’s announcement on Wednesday.
Historically, Fed rate cuts have been followed by a sharp rise in gold prices, such as during the 2008 financial crisis and the 2020 pandemic.
Gold is up about 25% so far this year as central banks have piled up the precious metal at record levels.
Inés Ferre is a senior business reporter at Yahoo Finance. Follow her on X at @ines_ferre.
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