Peak prices for Gold in the U.S., why is this and what will happen to its value in the future?
The price of gold has been rising at a blistering pace for nearly two years and is expected to go higher as the US Fed plans to start rate cuts.
The value of gold has been on the rise since the end of 2022 when an ounce fetched just over $1,800 according to data from the World Gold Council, an industry body. Just this year the price per ounce has jumped over 20%, crossing the $2,500-mark last week.
That was well ahead of expectations laid out in an analysis published by JP Morgan in July that forecast gold averaging that value in the fourth quarter. The financial institution predicts that the value of gold will continue to rise yet further through next year, expected to reach an average of $2,600 by the end of 2025 “with risk still skewed toward an earlier overshoot,” said Gregory Shearer, Head of Base and Precious Metals Strategy at JP Morgan.
Peak prices for Gold in the U.S., why is this and what will happen to its value in the future?
The 20-month-long rally has been driven by a number of factors but has been underpinned by central banks in emerging markets seeking to diversify their reserves away from the dollar. Likewise, there has been outsized demand from Chinese investors looking for a safe-haven asset as the nation’s local equity and housing markets have gone through a chaotic period.
The most recent gains are being pushed by Western investors who are positioning themselves before an expected interest cut by the US Fed later this year. The Financial Times reports that according to World Gold Council data, holdings of physically back gold ETFs have grown by 90.4 tons since May. That is equivalent to $7.3 billion.
Escalating geopolitical risks have also helped the surge in gold prices along with a reluctance by those who physically hold gold to sell. “Amid fraying geopolitics, increased sanctioning and de-dollarization, we observe an increased appetite to buy real assets including gold,” observed Shearer.
“Gold’s resurgence has come earlier than expected, as it further decouples from real yields. We have been structurally bullish gold since the fourth quarter of 2022 and with gold prices surging past $2,400 in April, the rally has come earlier and has been much sharper than expected,” said the JP Morgan analyst.
“It has been especially surprising given that it has coincided with Fed rate cuts being priced out and U.S. real yields moving higher due to stronger labor and inflation data in the U.S,” he added. Investors had forecast as many as three rate cuts this year, but sticky inflation numbers stayed the policymakers hand.