The Fed’s big rate cut should boost gold demand

Investing.com — The Federal Reserve’s decision to aggressively cut interest rates last week should boost investor appetite for , according to analysts at Citi.

In a note to clients, analysts reiterated their “bullish” stance on the metal, projecting an average core price of $2,800-$3,000 an ounce in 2025.

Gold prices hit a record high in Asian trade on Monday on continued encouragement from lower US interest rates as well as uncertainty ahead of other economic indicators this week.

The yellow metal already peaked last week after the Fed cut borrowing costs by 50 basis points and signaled the start of an easing cycle, which analysts expect could lower rates by as much as 125 basis points in this year.

Lower rates bode well for gold as they lower the opportunity cost of investing in non-yielding assets. A fall in borrowing costs also reduces the attractiveness of the dollar and debt.

This week, a host of Fed members, notably Chairman Jerome Powell, are set to speak. Elsewhere, monthly data on the personal consumption expenditure price index — one of the Fed’s preferred inflation gauges — is also out on Friday and is likely to factor into the central bank’s monetary policy plans.

Beyond the Fed, central bank meetings in Switzerland and Sweden are also expected to generate interest rate cuts this week.

Meanwhile, among industrial metals, optimism about falling rates also strengthened in recent sessions.

Traders focused on more stimulus measures in major importer China after the People’s Bank of China unexpectedly cut repo rates to further boost local liquidity.

“Copper could be a bullish recovery trade if Fed tapering and Chinese easing produce a soft landing and rebound for the global manufacturing growth cycle. However, a surprise victory (for Republican presidential candidate Donald Trump) in the US election could make the path volatile on the risks of tariff implementation,” Citi analysts said.