Investment managers expressed a “constructive” outlook on gold, with some suggesting it could climb to $2,700 in the next few months, benefiting from interest rate cuts, a weaker U.S. dollar, increased interest from central banks and increased market volatility.

Gold prices held above the $2,500 level on Tuesday, August 20, reaching a new high of $2,531 during the trading session.

Prices have since settled to around $2,516 as of Wednesday, August 21.

From the beginning of 2024. the goods have increased in price by about 22 percent.

Reflecting on its recent strong performance, Philip Hudak, co-portfolio manager for Australian small companies at Maple-Brown Abbott, said the gold price had thrived on the back of an "increased geopolitical risk premium" on the back of material gains in net purchases of central bank gold driven primarily by China and Russia.

According to the World Gold Council, the central bank's net gold purchases rose 6% year-on-year in July to 183 tonnes, which it attributed to "the need to protect and diversify the portfolio".

A month earlier, the global survey of 70 central banks also found that almost a quarter of them intend to add to their gold reserves next year, the highest level seen since the survey began in 2018.

Speaking to InvestorDaily, Hudak explained that the recent rise in gold's popularity has a lot to do with market expectations for interest rate cuts to come.

"We remain constructive on gold given that rate easing cycles have historically been price-friendly and provided significant tailwinds in the 12 months following the first cut in previous cycles," he said.

ANZ senior commodity strategist Daniel Hynes also linked gold's recent rise to expected monetary easing, as well as the upcoming Jackson Hole Symposium where US Federal Reserve Chairman Jerome Powell is expected to outline a roadmap for interest rates in USA.

With the view that the Fed's rate-cutting cycle is coming to a close, Hines last week set his year-end price target for gold at around $2,550.

"Cutting interest rates are generally positive for gold as they reduce the opportunity cost of holding gold," Hines said in a market note.

"Easing monetary policy and the resulting decline in US Treasury yields and the decline in the US dollar will be the main drivers of gold demand." So far, gold has been supported by healthy physical demand and central bank purchases fueled by geopolitical tensions. Now lower interest rates and a weaker dollar will add to those engines.”

Looking back at US easing cycles as far back as 1990, Hines pointed out that the price of gold rose 5-6 percent after the first rate cut.

"Furthermore, the US election is likely to prompt investors to hedge against market volatility." So we expect the price of gold to reach a new high of $2,550/oz by the end of this year,” he said.

Speaking to InvestorDaily, Robin Tsui, the Asia-Pacific gold strategist at State Street Global Advisors, said that strong retail buying from Asian markets in the first half of 2024, along with strong central bank interest, led the manager for the fund to "reset" its expectations for the second half.

"I think a lot of clients were quite surprised by the strength, and so were we, because we didn't expect the price of gold to reach historic highs in April and May." It made us readjust our expectations for the second half," he explained.

State Street's base case stood at $2,200 to $2,500, which has already been surpassed, while the bull case is between $2,500 and $2,700.

"We said this because we expected interest rate cut expectations to push gold prices higher due to the weaker US dollar," he told InvestorDaily.

"Once the Fed starts cutting interest rates and we've seen the U.S. dollar get weaker as well, we really expect the strong historical correlations between the U.S. dollar and the price of gold to continue."

ETFs boost the price of gold

Tsui also believes that gold's rise is related to its growing popularity in the ETF envelope.

According to the World Gold Council's latest forecast, gold ETFs attracted US$3.7 billion in inflows last month, marking the third straight month of inflows.

Combined with a 4 percent rise in the price of gold over the period, this helped push total global gold assets under management (AUM) to a new month-end record of US$246 billion.

Looking across regions, the WGC found that Australia recorded inflows of around US$26.3 million, "likely fueled by the strong performance of the gold price in the depreciating local currency", to bring total AUM to US$3.2 billion .

"What we're seeing right now is that gold ETF flows are coming back because over the last couple of years, especially in the first half, we've seen quite strong outflows from Europe and also from the US as interest rates have been quite high in those regions. But in the past two months, we have seen quite significant inflows from US and Euro investors, which have also supported gold prices,” Tsui said.

"The increase in market volatility and the reduction in interest rates and the weakening of the US dollar plus the return of gold ETF inflows, these four factors will be quite supportive of our bull case."