Is the "bullish" gold market continuing? Wall Street is bullish again, targeting $3000

Due to market expectations of an imminent rate cut by the Federal Reserve, the price of gold has recently broken through $2500 per ounce, reaching a historic high. Gold has risen by 21% so far this year, becoming one of the best-performing major commodities in 2024. Banks including Citigroup, UBS, and ANZ Bank have indicated that there is still room for further increase in the price of gold.

The recent surge in gold prices may not come as a surprise. In June this year, consultancy firm Metals Focus predicted a record high for gold prices. Analysts at Citigroup stated in a report on Monday that gold investors are bullish for the next three to six months; the bank also mentioned that they expect the price of gold to reach $3000 per ounce by mid-2025 and forecast an average gold price of $2550 per ounce in the fourth quarter of this year. Furthermore, a report by Bank of America earlier stated that with the Fed starting rate cuts and increasing debt leading to economic uncertainty, the price of gold could touch $3000 per ounce in the next 12 to 18 months.

Moreover, Sabrin Chowdhury, Head of Commodity Analysis at BMI, pointed out the attractiveness of gold as a safe-haven asset - 2024 being a U.S. presidential election year, along with escalating tensions in Russia, Ukraine, and the Middle East. Gold thrives in uncertainty, and currently, uncertainty is at its peak. Another factor driving the rise in gold prices is the increasing likelihood of a rate cut by the Federal Reserve in September. The July Fed meeting boosted investors' confidence in a potential rate cut in September. BMI analysts stated, "If the Fed starts cutting rates, likely next month, the price of gold could reach $2700 per ounce."

Meanwhile, in July, UBS mentioned that gold has more room for upside as it expects the price of gold to reach $2600 per ounce by the end of this year and $2700 per ounce by mid-2025. Allocating gold in portfolios is an attractive diversification and hedging tool for investors.

Wayne Gordon, Commodity Strategist at UBS Global Wealth Management, stated, "By around mid-2025, the price of gold will move towards $2700 per ounce," citing the Fed's policy shift, global central bank purchases, and the market's need for portfolio hedging.

Multiple Positive Factors Resonate, Supporting Gold Price Outlook

Downward Real Rates Boost Gold Prices

The recent surge in gold prices is mainly due to market expectations that U.S. policymakers will soon begin cutting interest rates, with investors widely expecting the Fed to cut rates at the next meeting. The heating up of rate cut expectations has lowered real rates, creating a more favorable environment for gold, which does not pay interest. Low rates are usually beneficial for gold, and the two typically have a negative correlation.

Recent Trends - Rising Gold Prices and Falling Interest Rates - indicate that traditional macroeconomic drivers such as bond yields are regaining dominance. Earlier this year, gold prices rose alongside rising yields, a pattern that experienced analysts found surprising. The decoupling of the relationship between the two at that time was mainly due to strong purchases by global central banks, especially in emerging markets in Asia.

Global Central Banks Spark "Gold Rush"

Gold may still have room to rise in the future, thanks to strong buying from Western investors and global central banks. Adrian Ash, Director of Research at BullionVault, stated: "Over the past five years, global central banks have seen a surge in demand for gold, with almost one ounce out of every ten ounces produced by the mining sector being bought by central banks. The endless demand for gold by central banks has become one of the cornerstones of the gold bull market, playing a crucial role in both fundamentals and market sentiment."

According to Ash's data, since the summer of 2004, the total weight of gold in central bank reserves has increased by nearly 19%, while its value in US dollars has grown sevenfold to $2.4 trillion, primarily driven by Russia, China, India, and Turkey.

Furthermore, African countries are currently eager to build up gold reserves to hedge against the impact of geopolitical tensions on their currencies. Countries like South Sudan, Zimbabwe, and Nigeria are either planning or have already taken measures. A survey by the World Gold Council indicates that around 20 central banks are expected to increase their gold reserves in the coming year.

Funds Positioning Indicates Bullish Gold Prices

As gold prices continue to rise, the participation of hedge funds and speculators is also increasing. According to data from the US Commodity Futures Trading Commission (CFTC), net bullish bets on Comex gold futures are close to a four-year high set in mid-July. A 9% increase in open interest last week suggests that investors are becoming increasingly optimistic about gold, rather than just closing out positions.

However, Daniel Ghali, Senior Commodity Strategist at TD Securities, noted that in the short term, current positions seem overly large, and funds may be vulnerable. Ghali stated that the next catalyst for repricing Federal Reserve policy outlook will come at the Jackson Hole meeting, followed by the next US employment data. Federal Reserve Chairman Powell will provide clues on monetary policy outlook at the Jackson Hole Global Central Bank Annual Symposium later this week.

Rising Demand for ETF Investments

A similar situation may also be seen in gold-backed Exchange-Traded Funds (ETFs), with signs in recent weeks showing increased investor interest. While gold prices surged in March and April, ETF holdings continued to see net outflows, reaching the lowest level since 2019 in mid-May. However, from June onwards, there seems to have been a change in fund flows, with ETFs experiencing two months of net inflows Strong Demand in the OTC Market

The demand in the over-the-counter (OTC) trading market may be difficult to track, but it has been an important support for the rise in gold prices this year. Trades in the OTC market are conducted directly between traders or buyers and sellers, without going through exchanges or clearinghouses.

According to data from the World Gold Council, strong demand for physical gold bars, especially from Asian family offices, has helped drive gold consumption to its best second quarter in at least 25 years. The World Gold Council stated that further growth in demand in the OTC market (including purchases by some central banks) is expected to be a key driver for the increase in gold prices