Gold continues to gain amid interest cuts and falling bond yields

The precious metal continues to achieve more momentum after the highest gains recorded since the beginning of this year so far. Since the beginning of 2024, prices have jumped gold 30.3 percent to win an ounce About $625, as the price jumped from the level of $2062 at the end of last December’s trade to about $2687 in recent trade, thus recording a new historical high.

With this increase of more than 30 percent, the precious metal’s gains outpaced those of the Standard & Poor’s 500 index, which has registered a 20 percent increase since trading began this year, partly due to a jump in demand from central banks, including China, Turkey, and India, which added to their gold hoards this year to diversify their resources away from the US dollar.

But some investors say that the rise of the yellow metal also shows that markets are still concerned about the health of the US economy, despite the recent increases in the stock market. Traders tend to gravitate to gold in times of uncertainty, guaranteeing that its value will hold up better than other assets such as stocks, bonds and currencies in the event of an economic downturn.

American pessimism about growth and the labor market

After announcing a price reduction Interest US Federal Reserve Chairman Jerome Powell said the big interest rate cut by half a point was aimed at avoiding further weakness in earnings. Some economists said that even after the interest rate cut, the economy is still not in a clear state, noting that it is difficult to reduce the unemployment rate once it starts to rise. The unemployment rate reached 4.2 percent last August, which is still low by historical standards, but up from 3.8 percent a year earlier.

New data on consumer confidence showed that Americans are feeling pessimistic about the American economy and the future of the job market. The Conference Board’s monthly confidence index fell to a lower-than-expected reading of 98.7 points in September, down from August’s upwardly revised reading of 105.6 points.

In a recent research note, Christina Huber, chief global market strategist at Invesco, said, “Investors are very concerned that this 50 basis point cut could be an easing of the crisis, and that there is more weakness . in the US economy than can be seen now. “

This uncertainty could be a strong opportunity for gold, as JPMorgan Chase researchers said in a recent report note that they expect the yellow metal to continue moving towards its its 2025 target price of $2,850 per ounce as the Federal Reserve lowers interest rates. The central bank plans to cut interest rates by half a percentage point this year and a full percentage point reduction in 2025.

Gold gets higher than treasuries

The move to raise interest rates by the Federal Reserve increases the attractiveness of gold over Treasury bonds which compete as a safe haven The yield on 10-year US Treasury bonds reached around 3.7 percent during the session trade last Tuesday, that is, less than. the yield on bonds was higher than 4. percent, which investors received just two months ago.

In his statement, Granite Shares CEO Will Rhind said, “There is no real way at this stage to think of gold except in a positive light.” He pointed out that silver, another precious metal, tends to move side by side with gold, as it has jumped about 34 percent this year, outperforming the yellow metal. He pointed out that an increase in money certainly tends to show hope that the economy will accelerate, since it is a material used in building infrastructure and products such as electronics, jewelry and tableware.

Money is also an important ingredient in the transition to clean energy, and in a recent report, Citibank strategists suggested that demand driven by solar power and electric vehicles in China, along with interest rate cuts, will help the Federal Reserve, increase in money prices.

New moves by China to revive its economy also have the potential to boost prices of precious metals, Rind said. Last Tuesday, China’s central bank unveiled a package of measures that include lowering its benchmark lending rate and reducing the amount of money banks must hold in “reserve,” which freed up money for lending.

3 main concerns contribute to the benefits of the precious metal

In recent trading, gold prices consolidated their gains due to the ongoing geopolitical tensions in the Middle East, and at the same time as the monetary stimulus measures taken by China. When settled, gold futures prices for December delivery rose 0.3 percent, or $7.7, at $2,684.7 an ounce, taking the yellow metal to its fifth highest level since the Federal Reserve cut rates. smooth

In the currency market, the dollar index, which measures the performance of the US currency against a basket of six major currencies, rose 0.4 percent at a level of 100.89 global reserve currency points with continued gains in gold and as central banks tend to lower interest rates.

In terms of positive prospects, UBS Bank raised its expectations for gold prices, and expected to record more gains in the next year, after prices increased by more than 30 percent from the beginning of this year to date. Gold prices continue to record new highs this year due to three main concerns: uncertainty about economic growth, geopolitical tensions, and the weakness of the US dollar.

The Swiss Bank expects prices of the precious metal to reach $2,750 an ounce by the end of 2024 from its previous estimate of $2,600 By the middle of next year, it could reach $2,850 and then to $2,900 by the third quarter of 2025. He pointed out that historically the yellow metal tends to rise by It reaches 10 percent in the six months after the first interest rate cut by the Federal Reserve Also , with the US elections approaching, the bank expects an increase in uncertainty, which will improve demand for gold as a safe haven.