Federal Reserve’s Impact on Gold Prices

The Federal Reserve’s recent aggressive interest rate cuts are expected to significantly increase investor interest in gold, as stated by analysts at Citi.

In a note to clients, the analysts maintained their bullish outlook on gold, predicting an average price range of $2,800 to $3,000 per ounce by 2025.

Gold prices reached a record high during Asian trading on Monday, driven by optimism over decreasing US interest rates and uncertainty surrounding upcoming economic indicators this week.

The yellow metal experienced a surge in prices following the Fed’s decision to reduce borrowing costs by 50 basis points, marking the start of an easing cycle projected to reduce rates by up to 125 basis points this year.

Lower interest rates benefit gold as they diminish the opportunity cost associated with investing in non-yielding assets, while also reducing the attractiveness of the dollar and related debt.

This week, key speeches from Fed officials, particularly from Chair Jerome Powell, are anticipated. Additionally, the monthly personal consumption expenditures price index— a key inflation measure for the Fed—is scheduled for release on Friday, likely influencing the central bank’s future monetary policy.

Central bank meetings in Switzerland and Sweden are also poised to announce interest rate cuts.

In the industrial metals sector, declining rates have positively impacted copper prices in recent sessions. Traders are paying close attention to stimulus measures from China’s top importer, as the People’s Bank of China surprised markets by cutting repo rates to increase local liquidity.

Citi analysts suggested that if the Fed’s cuts and China’s easing lead to a soft landing, copper could experience a bullish recovery as global manufacturing growth rebounds. However, they cautioned that a surprise victory for Republican candidate Donald Trump in the upcoming US elections could introduce volatility due to tariff risks.