Gold to surge through $1,600/oz as Fed, faced with economic slowdown, opts for interest rate hikes

THE price of gold would surge through $1,600 per ounce in line with Federal Reserve plans to cut interest rates in an effort to combat slowing economic growth amid global trade tensions, said Bloomberg News citing a report by Harry Tchilinguirian, head of commodity research for BNP Paribas.

Bloomberg New said in a report republished by Fin24, that the Fed will opt for four, 25 basis point cuts between this month and June 2020. As nominal yields fall with each reduction, “… real rates will move and stay in negative territory, raising the appeal of holding gold,” said Tchilinguirian.

Gold has soared this year on increased demand for havens as the US-China trade war damages global growth, prompting central banks including the Fed to adopt a more accommodative stance. In July, US policy makers reduced borrowing costs for the first time in more than a decade, and they are widely expected to do so again at their September 17-18 meeting. Against that backdrop, investors have boosted holdings in bullion-backed exchange-traded funds, said Bloomberg.

“The trade war is unlikely to be resolved quickly,” Tchilinguirian said. “In this context, gold has resumed its traditional role as a safe-haven asset” and holdings in ETFs are now heading toward peak levels seen in 2012, he said as BNP boosted price forecasts for this year and next.

Gold will average $1 400 an ounce in 2019, up $60 from an earlier forecast, and $1 560 in 2020 following a rise of $130 in the outlook, BNP said in the note. The Fed’s easing cycle should push average prices above $1 600 in the first quarter of 2020, it said, adding: “We expect gold to rise significantly.”