ING: Gold to Reach New Highs After the Fed's First Rate Cut, Targeting $2,700 Next Year!
ING predicts that the first rate cut by the Federal Reserve will be enough to push gold prices to a new all-time high, with the average spot gold price expected to reach $2,580 in the fourth quarter.
According to Ewa Manthey, a commodities strategist at ING, the rally in gold has only just begun, and the long-awaited rate cut by the Federal Reserve in decades will push gold to a new record high this month.
In the bank’s monthly update, Manthey pointed out that gold has been one of the best-performing commodities this year, with gains of over 21% year-to-date.
She noted that these gains have been primarily driven by market expectations of a Fed rate cut, strong central bank demand for gold, ongoing buying from Asia, heightened geopolitical risks, and the uncertainty surrounding the U.S. election, which has boosted safe-haven demand.
Manthey believes that the upcoming rate cut cycle by the Federal Reserve will be the next strong and lasting driver of gold prices.
She stated, "At the recent Jackson Hole meeting, Fed Chair Jerome Powell made it clear that the Fed will cut rates on September 18, saying, 'The time for policy adjustment has come, and the direction is very clear.'"
Manthey added, "Gold prices rose after Powell confirmed that the Fed would soon begin cutting rates. The focus of the gold market now is on the pace of the Fed's policy easing."
She noted that the latest U.S. employment data has been mixed, complicating discussions on the size of the first rate cut. She said, "U.S. economists believe the Fed will opt for a 50 basis point cut, but it’s a close contest."
Gold ETF demand also rebounded over the summer. Manthey wrote, "Global gold ETFs recorded inflows for four consecutive months, with all regions seeing positive inflows, led by Western funds in August."
She continued, "Gold ETF investor holdings tend to increase with rising gold prices, and vice versa. However, despite spot gold prices hitting new highs, gold ETF holdings declined for most of 2024. It wasn’t until May that ETF inflows turned positive."
Manthey also noted that COMEX total net long positions continued to rise, "up 17% month-on-month by the end of August, reaching the highest month-end level since February 2020."
Despite gold hitting new all-time highs in July, central bank demand for gold further strengthened in the same month. She wrote, "Net purchases by central banks more than doubled in July, reaching 37 tons, up 206% month-on-month, and the highest monthly total since January’s 45 tons."
Manthey pointed out that the Polish central bank was the largest buyer for the month, followed by Uzbekistan and the Indian central bank.
She stated, "In 2023, central banks bought 1,037 tons of gold — the second-highest annual purchase total in history, following the record 1,082 tons in 2022. Looking ahead, given the current economic environment and geopolitical tensions, we expect central bank demand to remain strong."
ING believes that the first rate cut by the Fed will be sufficient to push gold prices to a new record high. Manthey wrote, "We believe the U.S. presidential election in November will continue to fuel gold’s upward momentum through the end of the year. Geopolitics will also remain a key driver of gold prices. Tensions such as the Russia-Ukraine conflict and the Middle East situation suggest that safe-haven demand will continue to support gold prices in the short to medium term. Central banks are also expected to continue accumulating gold, providing further support."
ING now expects the average spot gold price in the fourth quarter to reach $2,580, bringing the full-year average for 2024 to $2,388 per ounce. Manthey said, "Gold’s upward momentum will continue into next year, with an average price of $2,700 in 2025."
