Fed’s Significant Interest Rate Cut Expected to Increase Gold Demand

Investing.com – Analysts at Citi believe that the Federal Reserve’s recent decision to significantly cut interest rates will enhance investor interest in gold. In a recent note to clients, they maintained a “bullish” outlook for the metal, forecasting an average price range of $2,800 to $3,000 per ounce by 2025.

Gold prices reached a new high during Asian trading on Monday, driven by ongoing optimism regarding lower U.S. interest rates and uncertainty ahead of several economic indicators expected this week. The yellow metal had already surged last week following the Fed’s decision to lower borrowing costs by 50 basis points, marking the start of a potential easing cycle that analysts predict may see rates decrease by up to 125 basis points this year.

Lower interest rates tend to benefit gold as they reduce the opportunity cost associated with investing in non-yielding assets. Additionally, lower borrowing costs diminish the attractiveness of the dollar and debt instruments.

This week, several Federal Reserve members, including Chair Jerome Powell, are scheduled to speak. In addition, the monthly personal consumption expenditures price index data—one of the Fed’s favored measures of inflation—is set for release on Friday and may influence the central bank’s monetary policy strategy.

Furthermore, central bank meetings in Switzerland and Sweden are anticipated to result in interest rate cuts as well.

On a related note, there is growing optimism for industrial metals as well, particularly copper, amid expectations of a decrease in interest rates. Traders are also focused on new stimulus measures from China, as the People’s Bank of China unexpectedly lowered repo rates to enhance local liquidity.

Citi analysts suggest that copper could see a bullish rebound if the Fed’s rate cuts and easing measures from China lead to a soft landing and a revival in global manufacturing growth. However, they caution that an unexpected victory for Republican presidential candidate Donald Trump in the U.S. elections could introduce volatility due to potential tariff implementation risks.