Gold prices hit another record as hedge funds step up buying

Speculative gold positions have surged to a four-year high since last week, according to Kitco News, as the rally has helped gold prices stay firmly above $2,600 an ounce.

Some analysts said that the gold bull position "looks a bit overdone" but is still well supported after the US Federal Reserve (FED) cut interest rates by 50 basis points.

“As the US central bank increasingly tilts its policy towards maximum employment, investors believe that the interest rate environment will become more accommodative, thereby reducing the opportunity cost and transfer cost of holding gold,” said commodity analysts at TD Securities.

They stressed that with expectations of strong easing and fiscal deficits, many investors see gold as a means of diversification. At the same time, it will be a good hedge against low real yields and the potential for a decline in risk assets.

Notably, some analysts at Kitco believe that speculative gold positions have become overextended, but they believe that the gold market still has significant potential. Some note that gold-backed exchange-traded funds are only just starting to see inflows after a sluggish start to 2024.

The world's largest gold-backed ETF, SPDR Gold Shares, saw its holdings rise by 12 tonnes last week.

“The demand for ETFs is just starting and that will create a whole new wave of momentum for the entire market,” said Chris Mancini, deputy portfolio manager of the Gabelli Gold Fund (GOLDX).

Forecasts from the world's leading banks all share a positive view on the precious metal. Accordingly, the $2,700 mark is likely to be reached this year or early next year. The main driver for the precious metal's rise is the Fed's interest rate cuts, plus supporting factors such as geopolitical instability and gold buying from central banks.

"Gold is all bright colors right now. If you look back over the past year, the precious metal has passed every tough test," said Adam Button, head of currency strategy at Forexlive.

Even in the past six months, when China stopped buying gold and the US dollar strengthened, gold has not been affected too much. The precious metal has also held up well when stocks and cryptocurrencies have bounced. According to the expert, gold prices reaching $2,750/ounce or $3,000/ounce are also possible scenarios.