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Gold About to Hit $2,500? ETFs to Play

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Gold prices surged to a new record high on Monday, as UBS boosted its forecasts in anticipation of increased retail buying, as quoted on Morningstar. UBS analysts, led by strategist Giovanni Staunovo, adjusted their gold forecasts. They boosted their June forecast to $2,300 an ounce, surpassing the target, and lifted the year-end and end-March 2025 forecasts to $2,500 an ounce. Gold is currently hovering around a level of $2,358.40.

Citi Analysts Also Bullish

Citi analysts also raised their gold price targets, projecting a potential rise to $2,400/oz in the short term and foreseeing a bull-case scenario of $2,500/oz for the second half of 2024, per the above-mentioned article.

While factors such as expectations for Federal Reserve interest rate cuts and geopolitical tensions have been driving gold's rise, there are also suggestions that investors are anticipating central banks to continue buying gold, further boosting demand.

Silver Prices Follow Suit

Silver prices replicated the upward trend, with June delivery prices rising to $2,356.10 an ounce on Monday. Silver has seen a 17% increase this year and closed at its highest level since June 16, 2021, on Friday.

Let’s delve a little deeper.

Gold as an Inflation-Protecting Asset

The demand for inflation hedge and growing global growth worries are driving investors toward gold, as it is considered a safe haven. India is the world's second-largest consumer of the yellow metal. The demand for gold in India, which has been in the range of 700-800 tons annually since 2019, is expected to increase to 800-900 tons in 2024 on the back of robust economic growth and higher income, according to the World Gold Council (“WGC”).

Fed Maintains Rate Cut Projections

Gold prices tend to move inversely to interest rates. When interest rates decline, non-interest-bearing gold becomes more attractive as it competes more favorably with interest-bearing investments like bonds.

The Federal Reserve decided to keep interest rates unchanged at its latest policy meeting, maintaining the benchmark rate in the range of 5.25-5.50%. No officials see rates going up in 2024. Despite previous expectations of a lesser number of rate cuts due to the recently released hot inflation numbers, the Fed still anticipates the need for three rate cuts in 2024.

This would likely weaken the U.S. dollar and favor gold prices. This has boosted investors’ optimism toward gold investing. The gold bullion ETF GLD has gained 13.5% this year.

Central Banks Buying

Central banks in emerging markets are seeking to lower reliance on the U.S. dollar for reserves holdings and are intending to hedge against inflation. The People’s Bank of China (“PBoC”) wore the crown for the largest single gold buyer, as it reported a total rise of 225 tons in its gold reserves in 2023. This marked 2023 as the country’s highest single year of reported additions since at least 1977.

Global central bank gold buying lifted annual (net) demand to 1,037 tons in 2023, just short of the record set in 2022 of 1,082 tons. Global official sector gold reserves are now estimated to total 36,700 tons, per WGC. Two back-to-back years of more than 1,000 tons of buying is proof of the recent strength in the central bank's demand for gold.

Anticipation of Increased ETF Demand

UBS analysts anticipate that gold exchange-traded fund (ETF) holdings will rise once the Fed implements interest rate cuts. They believe ETF demand could increase significantly as interest rate adjustments typically influence these buyers.

Bottom Line

The gold’s rally from here depends on the Fed’s behavior and the progression of the geopolitical crisis. If the Fed stays put from here or cuts rates, it would be good news for gold and silver investing.

Hence, investors should closely track ETFs like iShares Gold Trust (IAU - Free Report) , abrdn Physical Gold Shares ETF (SGOL - Free Report) , SPDR Gold MiniShares Trust (GLDM - Free Report) and Goldman Sachs Physical Gold ETF (AAAU - Free Report) . In a bull-case scenario, investors should track leveraged gold ETF ProShares Ultra Gold (UGL - Free Report) .

Investors can also keep a close tab on silver ETFs like iShares Silver Trust (SLV - Free Report) , abrdn Physical Silver Shares ETF (SIVR - Free Report) and ProShares Ultra Silver (AGQ - Free Report) .

 


 

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