The price of gold has this morning reached a new all-time high, potentially due to expectations that the US Federal Reserve will cut rates in September.
This year alone it has risen by over 20%. Newspage asked experts for their views and for what markets and asset classes could benefit if the Fed does proceed to cut, with one singling out emerging markets.
Anita Wright, Independent Financial Adviser at Bolton James said, “The recent surge in gold prices, reaching a new all-time high, is driven by several factors, notably the U.S. Federal Reserve’s expected monetary policy changes.
“The market anticipates a September rate cut, possibly exceeding 0.25%, which is typically bullish for gold. Remarkably, gold has risen over 20% this year despite high interest rates. Additionally, central banks, particularly in BRICS countries like Russia, China, India, and Turkey, have dramatically increased their gold purchases, reflecting growing mistrust in the U.S. dollar.
“This trend is further fuelled by the BRIC countries accelerating their efforts towards de-dollarization. Commodities that were traditionally traded in dollars are increasingly being traded in local currencies or gold, which contributes to a weakening dollar.
“The combination of lower interest rates, a weaker dollar, and strong central bank demand creates a highly favourable environment for gold and it is plausible that gold could rise further.”
Paul Della Guardia, Economist & Founder at Sovereign Vibe said, “A rate cut by the US Federal Reserve would push yield-hungry capital towards emerging markets (EM), though the surprise element of monetary policy is also important.
“Loosening faster than currently expected would potentially accelerate flows to EM. Quantitative tightening matters, too. The Fed curtailed QT in May, which is broadly positive for risk assets, including EM. Further steps to reduce or scrap QT, or even reinstating QE, would be EM-positive.
“Fed monetary loosening weighs on the USD, reducing FX pressure on EMs with hard currency debt, external deficits and those reliant on imported food and energy. If the Fed’s rate cuts don’t push oil prices up too much, pockets of value are to be found in countries that meet these criteria, especially where there is a meaningful growth differential with DM (developed markets).
“Keep an eye on how these factors converge in countries such as Egypt, Kenya, South Africa, Jordan, the Philippines and Paraguay.”
