ETFs
Is gold ready to surpass $3,000? ETFs to Consider – June 25, 2024
Gold, a safe haven during tough times, has been trending higher, encouraging calls for the commodity’s price to rise to its peak.
The price of the yellow commodity rose amid growing geopolitical tensions in the Middle East, and the growing likelihood of an interest rate cut as the Fed and central banks increase their purchases of the precious metal.
The probability of a rate cut increases
With projections of a rate cut later in 2024, investing in gold is becoming more attractive. Recent inflation data has ignited market expectations for an interest rate cut this year, with a 61.1% chance the Fed will cut the rate to 5-5.25% in September, according to the CME FedWatch tool.
With a 45.2% chance that interest rates fall to 4.75-5% in December, long-term Treasury yields could begin to fall, making gold more attractive to investors than obligations.
Will gold rise following the fall of the greenback?
Gold prices are inversely proportional to the value of the US dollar because gold is valued in dollars. A weaker U.S. dollar generally leads to higher demand for gold, driving up its price as it becomes more affordable to buyers holding other currencies.
If the Fed cuts rates, the greenback could lose its strength. As the US dollar weakens towards the end of 2024 and into 2025, the price of the yellow product could increase further.
Optimistic price prediction
According to commodity analysts at Bank of America, as quoted on the Barchartthe price of the yellow commodity is expected to exceed $3,000 per ounce over the next 12 to 18 months, driven by expected Fed interest rate cuts and ongoing central bank purchases.
Growing interest from central banks in the precious metal
According to commercial standardCentral banks in advanced economies plan to increase their share of the precious metal, reflecting the position of emerging economies in purchasing the metal.
According to a survey by the World Gold Council, cited in the Business Standard, almost 60% of these banks plan to increase their gold allocation over the next five years, compared to 38% last year.
According to the Financial Times, cited in the Business Standard, around 13% of advanced economies are expected to increase their gold reserves in the coming year, up from around 8% last year.
This estimate is supported by the fact that the People’s Bank of China is diversifying its foreign exchange reserves by increasing its gold reserves by 8 million ounces ($51 billion) since January 2023, thereby increasing the share of gold in China’s total reserves from 3.5% in December 2022 to 4.9% in April 2024. according to Business Insider.
Nearly 56% of advanced economies expect the dollar’s share of global reserves to decline over the next five years, compared to 46% last year. Among emerging market central banks, 64% share this view, suggesting a potential shift toward portfolio diversification with increased investment in gold, which would drive up the demand and price of gold.
Focus on ETFs
Over extended investment periods, gold preserves its purchasing power, outpacing inflation and contributing to significant diversification of an investment portfolio due to its historical tendency to have a negative correlation with other asset classes.
Growing chances of a rate cut, weakening greenback and increased gold purchases by central banks could potentially lead to investments in physically-backed gold ETFs.
Below we highlight some funds.