The gold price is expected to rise further after the announcement of the Fed’s rate cutting policies. Gold has been trading at its six-year high after three months of straight gain. Fed has announced that it would implement a 25-basis point reduction in the rates and is the first reduction since the 2008’s financial crisis.
BlackRock’s global head of thematic and sector investing; EvyHambro said those investors who are worried about the elevated risks associated with the equity markets would find gold as an attractive option for them. BlackRock expects gold to rise in the coming 12-18 months. Hambro said that compared to the cost of production, the prices of gold are not that extraordinarily high. Although most of the gold mining firms are profitable, they are not as profitable compared to the producers of iron ore who make extraordinary profits. Gold was trading around $1407.8 this Thursday morning which was less than $1431.2 that was before the announcement by Powell.
Hambro suggested that gold prices are expected to rise in the current market both as a currency as well as a commodity. As a currency it attracts investments as dollar weakens and the equities become risky as is the present case. The latter is about the supply as well as demand. In the current scenario, the latter is surpassing the former. He further said that the gold demand is very healthy now and is driven in part by investor demand and in part by jewelry demand which is also pretty much robust. He said that the main driving force behind the current surge of gold is its supply itself.
Hambro said that the gold mining firms have become more disciplined in allocating capital by reducing new investments as well as by raising transparency of investment decisions. The miners are trying to assure the investors that the spending splurge of the past will not be repeating again. Hambro said that this will in turn increase the returns and reduce the supply growth. When there is low supply growth and decent demand for a commodity, its prices will tend to rise.