Anticipated US interest rate cut to boost gold prices in May

Gold prices in the domestic market, which had earlier witnessed a surge to 34,550 baht (US$956) per baht-weight during the Lunar New Year, are anticipated to rise again in May. This forecast comes as traders expect the Federal Reserve to begin a cut in US interest rates, thereby potentially driving global prices to US$2,100 per ounce.

Gold Traders Association (GTA) President, Jitti Tangsitphakdee, disclosed that domestic prices of gold have declined by 300 baht from the high experienced during the Lunar New Year as global prices slightly dropped to US$2,019. He suggested that the domestic gold market would respond positively to the anticipated 0.25% cut of the US policy rate in May. Jitti added that the Federal Reserve is projected to reduce the rate at least twice this year, leading to a 0.5% slash in US rates.

“Once the Fed starts cutting the rates, gold prices will have a resistance level of US$2,100 per ounce and support level at US$1,975.”

He further predicted a potential rise in domestic gold prices to 40,000 baht per baht-weight, albeit not within the current year. reported Bangkok Post.

As global geopolitical tensions rise and central banks worldwide fortify their gold reserves, the probability of gold supply falling short of demand in the long term increases, according to Jitti.

Echoing this sentiment, Kritrat Hiranyasiri, MTS Gold Chairman, opined that global gold prices would likely maintain a sideways movement in March and April, following recent trading within a $2,000-$2,045 per ounce range. He suggested the Federal Reserve might initiate a rate cut in May or June at the earliest, contrary to earlier forecasts of a March cut.

Gold demand

Shaokai Fan, who heads Asia-Pacific (excluding China) and global central banks at the World Gold Council, noted that if the US successfully navigates a soft landing, as many analysts predict, the demand for gold should remain strong since the opportunity cost for holding gold decreases.

With sustained central bank buying and robust retail demand in key markets, Fan expects the demand for gold to continue receiving support. Despite a slowing economy, gold demand in China remained strong in 2023, with a 10% year-on-year rise in jewellery demand and a 28% increase in retail investment demand. The weak property and equity markets have prompted investors to explore alternative opportunities, leading to gold reaping benefits, according to the World Gold Council.

“Intensifying geopolitical tensions are a key theme for investors in 2024, so gold’s role as a safe-haven asset will likely to continue to affect its performance this year.”

Fan also revealed that while gold jewellery demand in Thailand experienced a 2% year-on-year dip in 2023, demand among gold investors remained resilient, with a 13% increase.