Goldman Sachs Raises Gold Forecast to $2,900

Gold price has been on a bull run this year, rising around 34% from January through October. According to Goldman Sachs Research, the yellow metal is well positioned to continue its upward trajectory into 2025. In early September, Goldman Sachs’ analysts predicted that gold would reach $2,700 by early 2025, driven by the Federal Reserve’s interest rate cuts and continued gold purchases by the central banks of emerging markets.

By September 30, the analysts had raised their forecast to $2,900, stating, “We reiterate our long gold recommendation due to the gradual boost from lower global interest rates, structurally higher central bank demand and gold’s hedging benefits against geopolitical, financial, and recessionary risks.”

The State of Gold in October 2024

Spot gold had risen to an all-time high of $2,685.42/oz following the 0.5 bps rate cut by the Fed and rising tensions in the Middle East. Factors affecting gold prices are perfectly aligned to support further increases, with faster than anticipated interest rate cuts across the Western world and China, continuing gold buying by emerging market central banks, and investors turning to the safe haven due to political and economic uncertainties.

This has led to net purchases of the precious metal rising 206% in July 2024, compared to June. In addition, Costco’s earnings showed a double-digit increase in gold sales over the last quarter.

With analysts expecting gold to continue to rise, many traders might be interested in gaining exposure to this commodity. If you want to diversify your commodities trading portfolio by adding gold, here’s what you need to know.

How to Trade Gold

There are two basic ways to trade gold – through physical ownership of the yellow metal in the form of bullion or trading via paper-based instruments, such as ETFs and stocks. However, there are multiple choices within these two main methods.

Gold Bullion

Physical gold can be traded in the form of bars and coins. The precious metal is not just used for industrial purposes, but it has long been a store of value, which drives its demand. However, owning physical gold brings challenges of secure storage, which can be expensive and stressful. This led to the popularity of paper-based gold trading, which does not require you to own physical gold. This method of gold trading is usually done at spot prices and is, therefore, also known as spot gold trading.

Gold Stocks

A popular paper-based commodities trading method is stocks. You can gain exposure to the yellow metal by trading the stocks of companies involved in gold mining, refining or production. Some examples of popular gold stocks include Anglo American (AAL-L), Agnico-Eagle Mines (AEM), Barrick Gold (Gold), Newmont (NEM) and Kinross Gold Corporation (KGC). However, remember that gold stocks do not always move in the same way as gold bullion since the factors affecting stock prices often differ from those affecting physical gold prices. Gold stocks can either be traded through direct buying and selling on exchanges or via contracts for difference (CFDs)

Gold ETFs

Gold Exchange Traded Funds (ETFs) track the performance of a basket of gold stocks. Therefore, investing in gold ETFs can offer wider exposure to the yellow metal with a single position than with any other method of gold trading. You can choose to trade ETFs directly or via CFDs, depending on your trading style.

Spot Futures and Options

Futures contracts allow you to exchange gold for a predetermined price on a pre-decided date in the future. At the set date, you will need to exchange physical gold for cash or vice versa. Futures contracts are standardised agreements in terms of quality and quantity while the price is determined by market forces.

Gold Options

Options work just like futures contracts but without any obligation to execute the trade while buying on the preset date. This means you have the choice to either exchange bullion or gold futures at a predetermined price on a predetermined date. There are two types of options – call options give you the right to buy while put options give you the right to sell the yellow metal.

CFDs are possibly the most popular means of commodities trading since you can speculate on both rising and falling prices without needing to own or take possession of the underlying asset. Plus, CFDs can be traded on leverage, which magnifies your market exposure much beyond the capital in your trading account. However, it is important to remember that by magnifying market exposure, leverage multiplies both potential profits and potential losses. This makes risk management crucial for satisfying trading experiences.

Analysing Gold Price Movements

Before you start your gold trading journey, it is important to master the art of predicting future price moves. For this, you first need to know the factors that influence gold prices. Some of the most impactful factors include:

• Demand and supply
• The global economic condition, as revealed by economic data, such as inflation.
• Dovish or hawkish moves by leading central banks, such as the Fed and ECB.
• Strength of the US dollar. Gold tends to be negatively correlated with the USD.
• Geopolitical tension, armed conflicts, elections, trade disputes.
• Market sentiment

Now, there are two ways to analyse gold prices – technical analysis and fundamental analysis.

Technical analysis: This focuses on historical and current price data, along with trading volumes, to identify trends and predict future price direction. A variety of technical indicators are used for this, such as the MACD, Relative Strength Index and Bollinger Bands.

Fundamental analysis: This looks at the broader political, economic and social influences on gold, such as elections, geopolitical tensions, inflation, economic growth and interest rate changes. Periods of higher economic and political uncertainty have historically been associated with a rise in gold demand and, therefore, price.

It is important to note that the gold markets tend to be volatile and historical performance cannot guarantee future results.

To Sum Up

• Gold price has been on an uptrend in 2024.
• Goldman Sachs expects the price to hit $2,900 in 2025.
• There are two basic ways to gain exposure to the gold markets – trading physical gold and trading paper-based instruments.
• Physical gold is traded as coins and bars at spot prices.
• Gold stocks, ETFs, futures and options are other popular ways to trade the yellow metal.
• CFDs are popular because they do not require you to own the underlying asset.
• It is important to know the factors that move gold prices and master technical and fundamental analysis before trading gold.

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