Gold (GC=F) hovered near record highs on Thursday, buoyed by the Fed’s jumbo rate cut and a weakening dollar. Analysts expect the precious metal to rise further.
Gold futures rose to just above $2,600 after hitting new records in the previous session, shortly after the Federal Reserve announced a 50 basis point rate cut.
Analysts who monitor precious metals prices say the magnitude of the price cut will push prices higher next year as the dollar falls.
The US dollar (DX-Y.NYB), measured against a basket of currencies, traded above 100 on Thursday, a move that has been on an overall downward trend since June.
“By cutting rates more than expected, the Fed is indirectly opening the door to increased money supply, raising the risk of a second wave of inflation and further weakening the dollar,” said Alex Ebkarian, COO and co-founder of precious metals trader Allegiance Gold.
The precious metal, which is priced in dollars, becomes more affordable to foreign buyers as the currency weakens. Lower rates also make gold attractive to investors, since it doesn’t offer an annual yield.
Goldman Sachs analysts have recently called for higher precious metals prices, as capital typically flows into gold-backed exchange-traded funds (ETFs) when the Fed cuts rates.
The analysts wrote: “We expect a gradual increase in ETF holdings – and thus gold prices – as a result of the Fed’s easing cycle.”
The firm predicts a price target of $2,700 by early 2025 as Western capital flows into ETFs, central banks continue to hoard the precious metal and investors seek a hedge against geopolitical conflict and recession risks.
Futures were pricing in a 50 basis point rate cut ahead of the Fed’s announcement on Wednesday.
Historically, Fed rate cuts are followed by a sharp rise in gold prices, such as during the 2008 financial crisis and the 2020 pandemic.
The price of gold has risen about 25% this year as central banks have bought up the precious metal in record numbers.
Ines Ferre is a senior business reporter for Yahoo Finance. Follow her on X on @ines_ferre.
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