(News Bulletin 247) – The precious metal reached a new all-time high on Wednesday. Bank of America and Citi believe that gold could break through the $3,000 mark in the coming months.

While stock markets are setting records, gold’s momentum is even more impressive. Since the beginning of the year, the ounce has gained 26.1%, outperforming all major global indices.

Gold continues to break records. On Wednesday, an ounce reached a new all-time high of $2,627.20, according to data from investing.com, before falling back after the announcement of rate cuts by the US Federal Reserve.

“Gold had seen significant gains prior to the announcement, so the mixed reaction following the announcement may simply reflect a classic ‘buy the rumour, sell the news’ scenario,” notes Ricardo Evangelista of Activtrades.

“Over the next few days, however, gold prices could regain momentum as traders refocus on the possibility of further rate cuts in the near term, as hinted at by Jerome Powell (Fed Chairman, Editor’s note),” he added.

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Rates falling

Let us recall that gold has benefited for several months from a cocktail of positive elements, with significant purchases by central banks, notably the People’s Bank of China, and significant physical demand. Chinese households in particular have bought physical gold (coins, ingots) while Chinese real estate and stock markets are in full collapse.

Above all, the “barbarian relic”, as the economist John Maynard Keynes nicknamed it, benefited from expectations of reductions in key interest rates by the major central banks.

Let us recall that the reductions in key rates must mechanically support the demand for gold and its prices. In theory, the evolution of gold is negatively correlated with that of interest rates. The higher the interest rates, the less attractive gold is, all other things being equal. Unlike stocks (with dividends) and bonds (with coupons), gold does not produce income. Its price is consequently battered by a rise in interest rates, because it then becomes less and less interesting to invest one’s money in gold rather than to place it.

Another positive side effect of rate cuts is that they cause the dollar to fall. This again increases the appeal of gold, as with most commodities. Since gold is denominated in dollars, a fall in the greenback makes gold more attractive to investors holding currencies other than the dollar.

$3,000 by 2025?

Does gold still have potential to rise? For many strategists, the answer is “yes” and the question is rather what could be its peak.

The $3,000-an-ounce target is starting to gain traction. As early as April, Citi estimated that gold could reach that level in the next six to 18 months. That’s because of strong physical demand and its appeal as a hedge against geopolitical risks, the bank’s commodities analysts were quoted by CNBC as saying.

“The yellow metal is more than likely to continue its journey towards the next important price level of $3,000,” said Naeem Aslam, an analyst at Zaye Capital. The expert warned that any weakness in the upcoming economic data is likely to strengthen gold.

In a note published Monday, Bank of America estimated that gold should reach $3,000 per ounce over the next year.

“Gold is one of our preferred commodities, with the price of the yellow metal being driven higher by central bank purchases, Chinese investors and, increasingly, Western buyers, due to a confluence of macroeconomic factors, including upcoming US interest rate cuts,” the US bank said.

Of course, not all research firms are so optimistic. UBS is instead banking on an ounce of gold at $2,700 by mid-2025, judging that the precious metal will benefit from geopolitical tensions that will persist after the US presidential election in November.