The gold rally of 2024 is gaining momentum as the most actively traded gold futures contract reached a new high of $2,687.30 before retreating. This surge comes after the Federal Reserve implemented a significant half-point cut in US interest rates. Gold, a traditional safe haven asset, has seen a remarkable 30% increase this year, outperforming the S&P 500 index. Central banks in countries like China, Turkey, and India have been increasing their gold reserves to diversify away from the US dollar.
Investors are interpreting the rally in gold as a sign of lingering concerns about the US economy's health, despite the stock market hitting new highs. During times of uncertainty, traders often turn to gold as a reliable asset that can retain its value better than stocks, bonds, and currencies in case of an economic downturn.
Fed Chair Jerome Powell mentioned that the recent interest rate cut aimed to address potential labor market weaknesses. Economists have noted that even with the rate reduction, the economy still faces challenges, with the unemployment rate rising to 4.2% in August from 3.8% a year earlier.
Recent consumer confidence data indicates a pessimistic outlook among Americans regarding the economy and job market. The Conference Board's confidence index dropped to 98.7 in September, reflecting concerns about the economy's future trajectory.
JPMorgan Chase researchers predict that gold will continue its upward trend towards a target price of $2,850 per ounce by 2025, driven by further rate cuts by the Fed. The Fed's actions are making gold more attractive compared to Treasuries as a safe haven investment.
Silver, closely linked to gold, has also experienced a significant increase of 34% this year. The rally in silver often signals optimism about economic growth, given its use in various industries such as construction, electronics, and clean energy technologies.
Analysts anticipate that silver prices will be supported by growing demand in sectors like solar energy and electric vehicles, particularly in China. China's recent economic stimulus measures, including rate cuts and reduced reserve requirements for banks, are expected to further boost precious metal prices.
