NEW YORK - Gold prices rebounded after a brief decline earlier in October, reaching $2,644.00 per ounce as investors grapple with mixed signals from recent U.S. economic data.
The resilience of the labor market in September has injected uncertainty regarding the pace of monetary policy easing by the U.S. Federal Reserve, as strong employment data might justify a less aggressive approach to interest rate cuts.
Recent inflation reports in the U.S. have further complicated matters. Although the overall Consumer Price Index slowed, it did so less than expected, while core inflation, which excludes food and energy prices, actually increased.
These factors have slowed progress in alleviating price pressures, leading to adjustments in expectations regarding U.S. monetary policy.
While speculation about a significant 50 basis point (0.5%) rate cut has circulated given current economic conditions, it is now deemed more likely that a modest 25 basis point cut will occur at the Federal Reserve's meeting in November.
Market forecasts suggest an 86% probability of this scenario. For gold, which does not yield interest, the prospect of the Federal Open Market Committee (FOMC) easing monetary policy is a positive signal, especially in a lower interest rate environment where bonds and other interest-bearing instruments become less competitive.
Despite the recent rise, gold is on track to record its second consecutive weekly decline. The gold market experienced a correction down to $2,605.00 but has since shown signs of recovery. Current technical analysis indicates the potential for further growth towards $2,676.50, which would be the next target in this upward trend.
After reaching that level, a correction back to $2,645.00 may occur. This positive scenario is supported by the MACD indicator, which, while below zero, is preparing for a potential rise, suggesting strengthening momentum. Following this correction, the market could aim for a new rise towards $2,662.00.
Based on historical trends, the anticipated rate cuts should trigger an increase in gold prices, which would also positively impact shares of gold mining companies.
If history repeats itself, with each rate cut by the U.S. Federal Reserve expected in 2024 and 2025, gold prices should rise.
Analysts agree that the Fed will cut rates by an additional 50 basis points by the end of this year and another 100 basis points next year, according to Frank Holmes of U.S. Global Investors. A look back to 1982, when the first easing cycle began in the U.S., shows that Fed rate cuts have typically been a positive catalyst for gold prices.
In six of the seven cycles that occurred until 2020, the price of gold rose on average by 11% within a year following the first rate cut. Historically, the relationship between interest rates and gold prices is inverse, with lower rates usually supporting higher gold prices.
Regarding the effect of a single 50 basis point rate cut, gold prices have averaged an increase of 8.5% over six months following the cut, according to 2020 data. After approximately 4.5 years without easing, the Federal Open Market Committee reduced short-term interest rates by 50 basis points on September 19.
Goldman Sachs predicts a gold price of $2,900 per ounce by early 2025, driven by a combination of lower global interest rates, increased central bank demand, and the protective advantages of the metal. Gold prices have risen by 28.03% since the beginning of the year, reaching a historic high of $2,685.49 per ounce in September.