Prospect of rate cut boosts gold price, gold bulls cheer

As the Fed's rate cut approaches, the price of gold is expected to continue hitting new historical highs.

Thanks to the large-scale purchases by central banks around the world, spot gold has shown strong performance this year, with a cumulative increase of over 20%. As of the time of writing, spot gold has risen to $2523 per ounce, approaching historical highs.

Last Friday, Powell's dovish remarks at the Jackson Hole Global Central Bank Annual Meeting opened the door to a rate cut in September. The 10-year U.S. Treasury yield fell to its lowest level since December last year, and the dollar also briefly fell to a 13-month low. Coupled with escalating geopolitical risks and the safe-haven demand brought about by uncertainty in the U.S. election, under the influence of multiple factors, the price of gold is expected to continue to rise.

According to data from the Commodity Futures Trading Commission (CFTC), hedge funds and speculators have been increasing their bullish bets on the NYMEX, with net long positions in gold reaching the highest level in over four years.

UBS predicts that by the fourth quarter of this year, the price of gold will rise to $2600.

Rajeev De Mello, Global Macro Investment Portfolio Manager at GAMA Asset Management SA, commented:

"The opportunity cost of holding gold is decreasing."

"The rapid decline in real yields and the general weakness of the dollar make me very willing to use gold as another currency to short the dollar."

An interesting phenomenon to note is that demand for gold ETFs is also recovering. Market data shows that the holdings of one of the major gold ETFs, SPDR Gold Shares, have increased for eight consecutive weeks, marking the longest inflow of funds since mid-2020.

Ryan McIntyre, Managing Partner at Sprott, a precious metals and key mineral asset management company, stated:

"People are actually turning to physical gold ETFs. Purchasing through ETFs will become a very important part of the gold story."

Citi Group expects a significant increase in fund inflows into gold ETFs, with the price of gold potentially rising to $3000 by next year:

"Over the next 6-12 months, loose monetary policies have boosted demand, and volatility may increase amid recession risks... It is expected that by mid-2025, the price of gold could reach $3000."

UBS also stated that after the Fed's rate cut is implemented, a large influx of funds into gold ETFs and sustained buying demand are expected to occur