Analysts are backing gold to extend gains above record highs – and here’s why

Analysts have supported gold prices to maintain momentum in the coming months and reach new record highs as central banks continue to cut interest rates.

Gold hit a record $2,685.49/oz in September as geopolitical conflict and trade fears continued to drive investors into so-called ‘safe haven’ assets, while global central banks – particularly China – have boosted demand by substantially boosting reserves.

Gold prices fell $2,617 on Thursday morning, but are still up nearly 27 percent since the start of 2024 at $2,062.

Chief investment officer for global asset management at UBS Mark Haefele said the bank “continues to see fundamentals that should drive gold higher in the coming months,” highlighting the Federal Reserve’s rate cuts as a key driver.

Minutes from a meeting of Fed rate setters released this week reinforced expectations that the pace of rate cuts will not be as aggressive as initially expected, despite a massive 50 basis point cut last month.

Markets are currently predicting a roughly 80 percent chance that the Fed will cut another 25 basis points at the November 9 meeting, with a majority seeing a further 25 basis point cut in December.

This would bring the Fed’s interest rate spread from its current level of 4.75 to 5 percent to 4.25 to 4.5 percent by the end of the year.

Haefele said: “While markets have recently scaled back expectations about the pace of Federal Reserve easing, the central bank has nonetheless initiated its rate-cutting cycle, with more cuts to come.

“Gold has historically risen as much as 10 percent in the six months following the Fed’s first rate cut, and demand for ETFs is gaining momentum.”

He added that demand from Chinese investors “remains solid,” while growth in jewelry consumption, continued central bank buying and uncertainty over the U.S. election should also be supportive.

UBS predicts that gold prices will reach $2,850/oz ‘by mid-2025’, which would reflect growth of around 8.9 percent from the current price.

Kristina Hooper, chief global market strategist at Invesco, expects geopolitical tensions to be the main driver of gold price appreciation in the coming months.

She said: ‘Gold appears to have replaced US Treasuries as the ‘safe haven’ asset class of choice for many investors.

‘I expect this trend to continue given the uncertainty surrounding the US elections and rising tensions in the Middle East.

‘Gold could also prove more attractive to some investors as the opportunity cost of owning gold decreases as interest rates fall.’

Join the gold rush – or buy the picks and shovels?

Retail investors often purchase exposure to gold through exchange-traded funds (ETFs), which are relatively cheap and provide good liquidity in an illiquid market.

However, Kepler’s head of investment company research, Thomas McMahon, suggests investors should consider an alternative entry point.

He says: ‘While an ETF is the obvious solution for an investor looking for exposure to the gold price itself, it is also worth considering the mining sector.

The administrators of Investment company Ruffer have sold their gold to buy the miners, arguing that the cheap valuations mean there are more upsides and fewer downsides.

‘Golden prospect Precious metals remains the only option for pure exposure to the miners, and is up over 30 percent in NAV terms this year.

‘BlackRock World Mining does have significant exposure to gold mining, although it remains focused on industrial commodities, which are more economically sensitive, especially to the Chinese economy.”