Gold is forecast to continue enjoying a rally this year which has taken the yellow metal above the US$2,500 per ounce mark for the first time in recent days.
After gold hit a record US$2,509 on Friday and also opened the new week above the mark, analysts at UBS said that further gains were in store after a 21% rise so far in 2024.
“Despite gold having hit a new record high, we expect prices to move even higher over the coming months,” analyst Giovanni Staunovo wrote in a note on Monday.
The precious metal is forecast to top US$2,600 by the end of the year, according to the bank, based on the expectation that the Federal Reserve will cut interest rates over the coming months.
Fed chairman Jerome Powell is set to speak to central bankers at the Jackson Hole symposium on Friday, with the focus set to be on “any indication of an imminent rate cut,” UBS added.
Markets are widely pricing in a cut in September, with questions now circling around whether this will be by 25 or 50 basis points.
CFI research head George Khoury added changing expectations around the depth of the Federal Reserve’s cut “could continue to support gold’s performance” ahead.
This is as heightened geopolitical tensions in the Middle East and Eastern Europe also support gold as investors look to safe-haven assets.
DIY investor demand
The explanation for gold's rise so far this year lies in ongoing central bank buying, strong investment flows out of Asia and resilient consumer demand, said Rob Morgan, chief investment analyst at Charles Stanley (LSE:CHAS), which has carried out research among retail investors.
It found that well over a third (35%) of just over a thousand DIY investors surveyed have increased their exposure to gold over the last three months.
“Central banks, investors, and households in the East have recently emerged as heavy buyers of gold, notably in China as the end of the property bull market has triggered a major change in attitude towards it," said Morgan.
“The renewed popularity of gold is linked to the trend of deglobalisation and heightened international tensions as central banks increasingly crave a non-politicised reserve asset. As the world continues to fragment geopolitically this trend could continue."
Traders are likely to be asking themselves if the gold rally will continue or if this is a good time for them to take some profit off the table, added analyst Naeem Aslam at Zaye Capital Markets.
"Most traders are likely to take some profit off the table, and it is possible that the price may see retracement, and this is purely because the gold price has gone too far and too quick," Aslam said.
At a price of $2,500, traders "are not going to feel very comfortable buying gold above this price point", he added, "we [also] have a risk appetite among investors and traders, which means that more and more traders are likely to support riskier assets rather than the gold price".
From a technical analysis perspective, Aslam said the price of gold is "near the upper line of the upward channel which means that a retracement is highly likely".