Gold prices could rise to $4,000 an ounce by the end of 2026. Factors that may drive this increase include a more relaxed U.S. Federal Reserve, a weaker dollar, and continued buying from central banks. Fidelity International remains optimistic about gold. Some portfolios have raised their gold allocation to 5% after prices dropped from April’s peak of more than $3,500. A likely decrease in U.S. interest rates could make gold even more attractive.

Gold As A Diversification Tool

August often sees seasonal price drops, combined with ongoing global tensions, such as trade issues and conflicts in Ukraine and the Middle East. These factors push investors to diversify into gold. Although gold has risen over 25% this year, recent prices have stabilized as eased trade tensions reduced the demand for safe-haven assets. Tariffs act like a tax on the U.S. economy and may slow economic growth, which could boost the case for holding gold. The next few weeks might be a good time to prepare for higher gold prices, especially with a likely dovish Federal Reserve. Recent data shows the Consumer Price Index at 3.3% in May 2024. This raises the chances of a rate cut by September to over 60%, according to the CME FedWatch Tool. Derivative traders might consider buying call options to take advantage of this anticipated change in policy.

Demand And Institutional Support

A weaker U.S. dollar, which makes gold cheaper for buyers abroad, also supports this outlook. Central bank demand remains strong, with a net purchase of 290 tonnes in the first quarter of 2024. This is the highest amount ever recorded for any year’s start. Such institutional buying helps create a price floor, making dips an appealing entry point for traders. Gold has paused below its recent peak of around $2,450 an ounce, giving an opportunity to buy at a reasonable price. Historically, gold performs well during periods of Fed easing, as seen in the rally that started in late 2018 ahead of the 2019 rate cuts. We support Mr. Samson’s strategy of increasing investments after price dips. Geopolitical tensions continue to be an important but often overlooked reason to consider gold. Ongoing conflicts and uncertainties related to the U.S. elections could lead to more volatility, making gold a valuable diversifier. For traders, holding long-dated call options might be a cost-effective way to benefit from a potential risk-off scenario. Create your live VT Markets account and start trading now.

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