Gold has surged to record highs this year, with Wells Fargo Investment Institute suggesting that there’s still room for further growth, particularly given the evolving interest-rate landscape. The Federal Reserve’s potential rate cuts later in the year could serve as a significant tailwind for gold prices, as historical data indicates that gold has performed strongly during Fed rate-cut cycles. On average, gold has rallied 20% in the 24 months following the initiation of rate cuts by the Fed.
Despite expectations for Fed rate cuts being pushed back, gold prices have remained elevated, with investors hedging against the possibility of resurging inflation. Taylor Krystkowiak, an investment strategist at Themes ETFs, highlighted gold’s appeal as a hedge against potential Fed mistakes, particularly if rates are cut prematurely.
The Fed’s cautious approach, as articulated by Fed Chair Jerome Powell, suggests that restrictive policy will remain in place for the time being. However, Fed-funds futures indicate expectations of rate cuts beginning in September, with the possibility of only two cuts this year.
Gold prices are currently trading around $2,376 per ounce, up approximately 15% year-to-date, prompting Wells Fargo analysts to raise their price forecast for 2024 and 2025. They anticipate gold may need a temporary pause before resuming its upward trajectory.
Historically, Fed rate pauses have often sparked bullish rallies for gold, as observed in previous instances such as 2000, 2006, and 2008. This trend has continued since the Fed paused its rate hikes last year, with gold prices steadily climbing.
In addition to the shifting rate landscape, fundamental factors support the bullish case for gold, including central bank purchases, increased consumer demand in emerging markets, stagnant supply growth, and geopolitical tensions. These trends are expected to persist, providing further support for gold prices in the coming months.
Investors seeking exposure to gold have turned to ETFs tracking the precious metal, such as the SPDR Gold Shares ETF, which has seen significant gains this year. Additionally, gold miners are considered undervalued, with ETFs like the Themes Gold Miners ETF outperforming the broader equities market.
Overall, the outlook for gold remains positive, with potential for further upside driven by evolving interest rates, fundamental trends, and investor demand for safe-haven assets.