Why Investors Should Consider Gold Now
Gold has long been regarded as a "safe haven" investment, especially during times of economic uncertainty. As the Federal Reserve hints at a potential rate cut, analysts at Goldman Sachs are advising investors to "go for gold." Gold futures recently hovered above $2,515 per ounce, showcasing a remarkable increase of nearly 22% year-to-date. This makes gold the second-best-performing asset in 2023, just behind cryptocurrencies.
Gold: A Hedge Against Risks
Goldman Sachs analysts emphasize that gold remains their "preferred hedge" against both geopolitical and financial risks. With the Federal Reserve possibly cutting interest rates and ongoing purchases by emerging market central banks, gold's appeal as a secure investment continues to grow. In fact, Goldman has set a 2025 target price of $2,700 per ounce, reinforcing their "long gold" recommendation.
Central Banks and Geopolitical Tensions Drive Gold Demand
Central banks have been significant buyers of gold, reaching record purchases in early 2024. Analysts from BofA note that gold has now overtaken the euro as the world's largest reserve asset, trailing only the US dollar. Ongoing geopolitical issues, such as the Israel-Hamas and Russia-Ukraine conflicts, along with indications of a rate cut from the Fed due to a slowing labor market, have further supported gold prices.
Western Investors Increase Gold Holdings
According to the World Gold Council, global physically-backed gold ETFs have experienced inflows for three consecutive months. Western investors, particularly in North America, have shown increased interest in gold, surpassing activity in Europe and Asia.
Potential Challenges and Future Outlook
Despite the optimistic outlook, gold faces potential challenges. Historically, gold prices have declined every September since 2017. Analysts anticipate the next significant catalyst for gold prices could be the upcoming Federal Reserve meeting, especially after fresh labor data and a crucial jobs report expected this Friday.
According to JPMorgan analysts, "Gold prices continue to hover at around $2,500/oz, with focus primarily on the size of the expected upcoming Fed rate cut later this month." Currently, there is a 31% probability of a 50 basis point rate cut as opposed to a 25 basis point cut, as indicated by the CME FedWatch Tool.
