Is it Time to Buy Gold? Analysts Say Yes
According to Bernstein analyst Bob Brackett, it might be a good time to buy gold. The Federal Reserve is expected to cut interest rates this year, and history shows that this has pushed up the prices of precious metals. When real interest rates fall, investors tend to buy gold because owning dollars becomes less attractive.
Gold’s Performance During Rate Cut Cycles
The pattern of gold rising on lower rates is supported by 50 years of history. In seven of the nine previous rate cut cycles, gold rallied. The two exceptions were in 1974 and 1981 when the precious metal did not rally after rate cuts because the 10-year Treasury yield didn’t fall.
Positive Returns for Gold Investors
Looking back at the 95 rate cuts since 1971, buying gold delivered weighted average returns of 2.48% in one month and up to 6.53% in a year. Purchasing gold ahead of a rate cut cycle is correlated with a slightly higher return.
Risks and Expectations
One major risk to this bullish thesis would be if the U.S. economy continues to show robust growth and low unemployment. However, traders are already moderating expectations for rate cuts. It is reasonable to expect that the U.S. economy will slow this year with real rates at their highest level since 2010, which would justify Fed cuts.
Hot Take: The Prospects for Gold
Based on historical trends and the potential for future rate cuts by the Federal Reserve, analysts believe that now might be a good time to buy gold. When real interest rates fall, investors tend to turn towards gold as owning dollars becomes less attractive. Gold has historically performed well during rate cut cycles, with positive returns for investors. However, there are risks involved, such as a strong U.S. economy. Despite moderating expectations for rate cuts, it is still reasonable to expect that the U.S. economy will slow down this year, justifying potential Fed cuts. Overall, the prospects for gold appear promising in the current market environment.
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