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Gold prices to be boosted by Fed rate cuts according to Goldman Sachs

Minipip
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17 Sep 2024, 14:15

By Minipip
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Gold prices to be boosted by Fed rate cuts according to Goldman Sachs
Gold prices to be boosted by Fed rate cuts according to Goldman Sachs 
The analysts at Goldman Sachs reiterated their optimistic view on gold, emphasising that the Federal 
Reserve's anticipated reduction in interest rates will probably lead to an increase in gold prices. 
The bank cites growing central bank demand and a robust correlation between Fed policy and gold 
prices to support its $2,700/oz projection for early 2025. 
Goldman Sachs explains that increased central bank purchases, particularly from developing nations, 
are primarily responsible for the rise in gold prices, despite worries that the conventional inverse link 
between interest rates and gold has eroded since 2022.   
The bank argues that these nations have significantly boosted their gold holdings, changing the 
relationship between interest rates and gold prices. They are worried of US financial sanctions and the 
nation's mounting debt. 
Goldman does, however, note that "changes in interest rates continue to lead to changes in gold 
prices," adding that when rates decline, gold gains appeal as a non-yielding asset. 
According to analysts, the market has already factored in the anticipated rate reduction from the Fed. 
Goldman Sachs, on the other hand, disputes this assertion, citing the steady rise in ETF holdings 
backed by actual gold as evidence that the Fed's easing cycle will continue to support the gold market. 
The bank's calculations show that after a rate decrease, ETF holdings often increase steadily over the 
course of six months, which helps to further boost gold prices. 
Goldman emphasises the benefits of gold as a hedge against financial and geopolitical risks, such as 
prospective sanctions and worries about US debt, in addition to rate reductions. 
Given these circumstances, Goldman anticipates more gold price rises, restating its long-term trading 
advice and projecting steady demand from central banks and ETF expansion in the upcoming months. 
With these fundamentals in place, Goldman anticipates more increase in ETFs and central bank 
demand for gold in the upcoming months, maintaining its long-term trading recommendation. 
 
(Sources: investing.com) 

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