Gold Jumps Above $3400 Amid Rate Cut Expectations

On Thursday, spot gold surged, surpassing $3400 per ounce and hitting a one-month high. This rally was primarily driven by increasing expectations of interest rate cuts by central banks, coupled with the ongoing weakness of the US dollar. As of Friday's trading, spot gold slightly retreated by 0.24% to $3408 per ounce.

Several major financial institutions on Wall Street continue to express a bullish outlook on gold's future performance. Fidelity International believes that gold's bull market can often last for many years. Meanwhile, analysts at Bank of America anticipate a continued rise in gold prices, maintaining their forecast of $4000 per ounce by the first half of 2026.

Fidelity International: No Reason to Reduce Gold Holdings

Despite the substantial gains gold has recorded in the past two years, gold bull markets are often long-lasting. Ian Samson, a multi-asset portfolio manager at Fidelity International, believes that the recent likelihood of stagflation in the United States is high, and there is no reason for investors to reduce their gold holdings.

Samson noted in his research report that gold was one of the best-performing assets in his portfolio last year, rising by 27%. This year, it has risen by nearly 30%. He added that gold's bull market can often last for many years. Even if other debt instruments fail, gold can still provide risk diversification, maintain its status as the ultimate safe-haven asset, resist inflation and loose economic policies, and benefit from structural trends.

Samson expects the United States to experience an "economic slowdown or even stagflation" in the coming months, which supports the continued rise in gold prices. He suggests that the Federal Reserve will begin cutting interest rates while inflation is still around 3%, and tariffs may continue to push prices higher. Tariff shocks and a slowdown in labor supply may also lead to a weak growth environment.

Samson concludes that a combination of falling interest rates, sticky inflation, and sluggish growth should continue to support gold. These factors will lead to a weaker dollar, which is the main competitor to gold as a safe haven and store of value. He emphasizes that the magnitude of the US budget deficit raises concerns about currency devaluation, further reinforcing the long-term logic of gold. Additionally, bullish structural factors for gold remain strong, as foreign exchange reserve managers in various countries continue to buy gold, and holdings of gold ETFs continue to increase.

Bank of America: Inflation + Rate Cuts Drive Gold Higher

Bank of America also maintains a positive outlook on gold. The bank stated in its recent report that lower interest rates and a weaker dollar will provide support for rising gold prices. Analysts wrote that cutting interest rates amid rising inflation creates fertile ground for a weaker dollar, and cutting interest rates in an environment where inflation remains high is likely to push precious metal prices higher.

The market expects the Federal Reserve to begin cutting interest rates as early as September. CME Group's FedWatch tool shows that traders have almost fully priced in expectations of a 25-basis-point rate cut, and there is potential for further easing in October and December.

The bank adds that recent US economic data has prompted them to lower their interest rate expectations. Slowing employment data, narrowing job growth coverage, and other signs of a labor market slowdown may support the Federal Reserve's shift in risk assessment.

The Impact of Geopolitical Factors

It's also crucial to monitor global geopolitical tensions, as any escalation in these tensions could prompt investors to flock to gold as a safe haven, increasing demand and pushing prices higher. Trade conflicts, wars, and political instability are all factors that can significantly impact gold prices.

Diversification and Risk Management

Gold has historically been used as a diversification tool within investment portfolios. Its inverse relationship with other asset classes, such as stocks and bonds, can help mitigate risk during periods of market volatility. This makes gold a valuable asset for investors looking to protect their capital during uncertain times.