The Fed is ready to cut interest rates, and the gold bulls are celebrating! Is it just a matter of time before the gold price breaks $3000?

According to the Zhitong Finance APP, Federal Reserve Chairman Powell announced at the Jackson Hole Global Central Bank Annual Meeting, which is the focus of the financial markets, that the Fed's rate cut cycle is about to begin. In a speech of less than 20 minutes, Powell made the most explicit signal from the Fed on rate cuts, not only officially mentioning that "the time for monetary policy adjustment has come," implying that the Fed's rate cut cycle is imminent, but also hinting through various wordings that the Fed's future main task is to avoid an economic recession while ensuring a soft landing for the economy. Under the Fed's rate cut cycle, gold is undoubtedly one of the most benefited asset classes. The current gold price has surpassed $2500, reaching a historic high. In the view of some analysts, breaking through the $3000 mark may only be a matter of time.

Nick Timiraos, a senior journalist known as the "voice of the Fed" and "New Fed News Agency," declared after Powell's dovish remarks on the imminent start of the rate cut cycle at this year's global central bank annual meeting, that Powell has completely unleashed his dovish attributes. Timiraos posted on the social media platform X, saying, "Powell has completed a policy shift. Two years ago, Powell hinted that the Fed would accept an economic downturn in exchange for normalizing inflation. Now, his policy stance has become entirely dovish."

It is evident that compared to his speech at the press conference after the Fed meeting at the end of July, Powell's statement this time is less ambiguous. At that time, he emphasized that the Fed needed more data to be sure that inflation was falling. Following Powell's clear signal of a rate cut, Fed officials such as Philadelphia Fed President Harker, Chicago Fed President Evans, and Atlanta Fed President Bostic have all expressed dovish views in support of a rate cut, further solidifying market expectations of a rate cut.

Gold is indeed one of the major asset classes benefiting from the Fed's rate cut cycle. Since the beginning of this year, the prices of spot gold and futures have risen together. The main logic behind this is not only the safe-haven demand brought about by geopolitical risks in the Middle East but also the price boost brought by the market's anticipation of a rate cut. Now that the Fed has clearly indicated that the rate cut cycle is about to begin, the price of gold may experience another wave of upward trend similar to the "primary uptrend" in the stock market.

Last Tuesday, the price of gold hit a historic high, surpassing $2560 per ounce, and for the first time ever, the price of a gold bar (approximately 400 ounces) exceeded the $1 million mark.

Wayne Gordon, the commodity strategist at UBS Global Wealth Management, stated that by around mid-2025, the price of gold is expected to move towards $2700 per ounce. The main logic behind this is the Fed's policy shift, global central banks' support for gold purchases, and the strong demand for portfolio hedging in the market.

Michael Hartnett, the chief investment strategist at Bank of America and known as the "most accurate strategist on Wall Street," advised in his latest research report that even though the price of gold is hovering near record highs, investors should still buy gold. Hartnett wrote in the report that investors should do "what central banks around the world are doing" - buying gold Jackson Hole Central Bank Annual Meeting Strengthens Bullish Bets on Gold, Gold Bulls Cheer

With the traditional driving factors such as the Fed preparing to cut interest rates, the decline in US bond yields, and the influx of Western investors returning, the price of gold has soared to over $2500 per ounce, reaching record highs, with the potential for further upside in the future.

Regarding the future market outlook for gold, some top strategists have indicated that after the Fed clearly signaled a "dovish" interest rate cut, the historic milestone of gold prices hitting $3000 per ounce may only be a matter of time. Bloomberg's senior commodity strategist Mike McGlone recently stated in an interview with the media that he expects the price of gold to reach $3000 per ounce, emphasizing that it is only a matter of time.

McGlone stated in the interview, "The bottom line for gold is that when it is severely discounted, it usually outperforms the US stock market— the S&P 500 index. Now, with the unexpected rise in US unemployment rate and the dramatic reversal of the US bond yield curve, that's the situation." "Therefore, all expectations for gold are quite strong, especially if we start to review and feel the stock market, which would imply some degree of deflationary force."

In June this year, consulting firm Metals Focus predicted that gold prices would continue to set new records this year. Analysts at Citigroup stated in a report on Monday that gold investors are expected to remain bullish in the next three to six months; the bank also stated that it expects gold prices to reach $3000 per ounce by mid-2025, and forecast an average gold price of $2550 per ounce in the fourth quarter of this year.

"Everyone thinks the Fed will make the last rate cut, but now they are lining up." Infrastructure Capital Advisors CEO Jay Hatfield said. He recently chose to buy gold options for the first time in years. Hatfield stated that Fed Chairman Powell's speech at Jackson Hole— especially the commitment to cut interest rates— can be seen as a watershed moment for the gold market.

This year, gold has been particularly eye-catching, with gold bar prices setting a series of records, marking gold as one of the strongest performing asset classes among major commodities. In the first half of the year, gold's strong rise benefited from aggressive buying by global central banks and Asian investors, offsetting the drag from the strengthening US dollar, rising US bond yields, and outflows from gold-backed exchange-traded funds (ETFs). Now, these three major factors may reverse, potentially turning towards trends favorable to gold.

Rajeev De Mello, Global Macro Investment Portfolio Manager at GAMA Asset Management, stated, "The opportunity cost of holding gold is decreasing. The rapid decline in real yields and the overall weakness of the US dollar make me very willing to use gold as another currency to short the dollar."

As of 2024, the spot gold price has risen by more than one-fifth, with Wall Street investment institutions, including Goldman Sachs, stating as early as April that there is significant room for gold prices to rise to $2700 per ounce. Following Powell's clear signal of a rate cut at the Jackson Hole annual meeting last Friday, the US 10-year real yield has now dropped to its lowest level since December last year A 10-year real yield decline is very favorable for the gold trend, as the traditional safe haven asset gold does not pay interest like US Treasuries.

Among gold investors, bullish positions are becoming more common. According to statistics from the Commodity Futures Trading Commission (CFTC) in the United States, hedge funds and speculators have been increasing their bullish bets on the New York Commodity Exchange—gold net long positions have reached the highest level in over four years.

However, it is important to note that even as Western investors' enthusiasm for precious metals investment heats up, the gold price may be affected by weak demand from Asian gold consumers and profit-taking in gold. In Asia, the high price of gold bars has damaged overall demand in major gold markets such as India, while also prompting some early Asian gold investors to take profits.

Gold ETFs Expected to Become an Important Part of the "Gold Bull Narrative"

Currently, Citigroup expects that funds flowing into ETFs will "significantly" increase in the next 6 to 12 months, with loose monetary policies and the potential increase in volatility under recession risks boosting gold demand. The bank stated in a report before Powell's speech at Jackson Hole that by mid-2025, the gold trading price could reach $3,000.

There are signs that demand for gold ETFs is recovering. The holdings of SPDR Gold Shares (one of the main ETF products) have expanded for eight consecutive weeks, marking the longest inflow period since mid-2020.

According to UBS Group's forecast, when the Fed actually cuts interest rates for the first time, financial markets will anticipate a significant inflow into ETFs and continued demand from speculators. UBS also predicts that the gold price in the last quarter of 2024 could reach as high as $2,600. UBS stated that increased geopolitical risks will also be a factor driving gold prices higher, boosting demand for portfolio hedging.

"It is worth noting that investors have actually begun to shift towards physical gold ETFs." Ryan McIntyre, managing partner at Sprott Inc., a Toronto-based precious metals and key mineral asset management company with assets under management of up to $31 billion, stated, "The purchasing power through ETFs will be a very important aspect in the gold bull narrative."