Gold Bull Run: Seismic Shift with Lower Interest Rates and Impact on Investments

The world's most influential central bank, the Federal Reserve, announced a bold decision – a rate cut of 50 basis points, marking the beginning of a "recalibration" of monetary policy. 

The last few years we have seen a cycle of tightening interest rates, yet against allodds, a gold bull run has flourished. With these rate cuts, the outlook for gold may shift once again especially among Western investors.

Throughout the rate-tightening regime, gold saw significant growth, experiencing a 30% appreciation year to date as of September 27th of this year.  Some of the contributing factors to this success have been deeply rooted in various forms of uncertainty - economic, fiscal, and geopolitical. 

However, with interest rates now moving in the opposite direction, gold's attractiveness for investors may be once again on the rise.

Gold Bull Run: What Is Feeding It?

As a monetary metal, gold's price is often influenced by falling interest rates in two significant ways: a lower cost of money and a weaker U.S. dollar. When interest rates drop, the demand for gold can increase because it becomes less expensive to purchase compared to other assets. 

Additionally, falling rates can lead to continued weakening of the dollar, which investors commonly hedge against using gold.

The return of lower rates may reignite interest in gold among Western investors, who have been noticeably absent from the gold-buying scene for some time. 

With gold purchases dominated primarily by central banks from Eastern Europe and Asia, as well as retail purchases in Asia, the absence of Western investors may have been largely due to their inclination to prioritize higher-growth investments over gold's strategic values and safe haven properties.

Now, with recent rate cuts, analysts predict this might change. As the quote from Standard Chartered's analyst, Suki Cooper, suggests: "Now that the rate-cutting cycle has commenced, we think ETP inflows are likely to accelerate, supporting the next leg higher in gold."

Gold Optimism in the West

Recent data from the World Gold Council (WGC) confirms the rising interest in gold among Western investors. 

Gold-backed Exchange-Traded Funds (ETFs) worldwide witnessed net inflows of 28.5 metric tons, or $2.1 billion, in August 2024, with North America contributing the largest share.

Reputable banking giants such as J.P. Morgan, UBS, Bank of America, and Citibank are optimistic about the potential of gold investments with the new rate-cut outlook. While J.P. Morgan analysts project gold reaching up to $2,850 per ounce by 2025, UBS anticipates touching the $2,700 mark. 

Moreover, Bank of America and Citibank foresee even higher potential, with estimates of gold reaching $3,000 per ounce in 2025.

While it is impossible to guarantee these price projections, the underlying narrative emphasizes the potential impact of the ongoing rate cuts. 

Those who believe in the logic supporting these projections may consider gold investments or even a gold IRA for a tax-advantaged option during this period.

The anticipated shift in gold investment sentiments is noteworthy. As the monetary landscape changes and interest rates fall, the potential for an especially dynamic new phase of goldbull runs is on the horizon. 

And with Western investors likely to return to gold investments, the future of a gold bull run’s success remains an intriguing prospect for many.

For more on this story visit Augusta Precious Metals blog

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Sources:

Jeff Cox, CNBC.com, “The Fed has set out on a ‘recalibration’ of policy. Here’s what Powell’s new buzzword means” (September 19, 2024, accessed 9/26/24). 

CNBC.com, “Gold COMEX (Dec′24)” (accessed 9/26/24). 

Statista, “Demand from central banks in gold in 2nd quarter 2024, by country” (accessed 9/26/24). 

Samantha Luan, FastBull, “China’s Demand for Gold Is Unstoppable As Consumers, Investors, And the Central Bank Fuel a Record-Breaking Price Surge” (April 22, 2024, accessed 9/26/24). 

Ashitha Shivaprasad, Reuters.com, “Western ETF investors poised to heap fuel on gold’s record rally” (September 24, 2024, accessed 9/26/24). 

Gold.org, “Gold ETF Flows: August 2024” (September 5, 2024, accessed 9/26/24). 

U.S. News & World Report, “Factbox-Most Banks Expect Gold’s Bull Run to Persist Into 2025” (September 24, 2024, accessed 9/2624).