This rebound in gold may go further,with 2700 also within the bulls' reach?

After the Federal Reserve kicked off an easing cycle this week by cutting interest rates by 50 basis points,spot gold broke through $2600 per ounce again on Friday,approaching $2610 per ounce at one point,continuously setting new historical highs,and has risen by more than 25% so far this year.

Spot silver also rose by more than 1% during the day.

Will Rhind,founder of GraniteShares Advisors,which manages a gold ETF,said the start of the Fed's rate-cutting cycle means that interest rates are falling and the dollar will begin to weaken.

"This is good for gold,and the next catalyst for gold's rise will be if people feel the economy is heading into a recession and fear arises,and people need to start buying gold as a hedge," he said.

The Fed expects that by the end of this year,the benchmark interest rate will fall by another 50 basis points,and it will fall by a full 100 basis points next year,and 50 basis points in 2026.

Alex Ebkarian,Chief Operating Officer of Allegiance Gold,pointed out,"The market is considering larger and more rate cuts because the United States has both fiscal and trade deficits,which will further weaken the overall value of the dollar.

If you combine geopolitical risks with the current deficit situation,coupled with a low-interest-rate environment and a weak dollar,all these factors together are the reasons for the rebound in gold prices."

UBS said in a report,"In our view,this rebound may go further.

Our target is for gold to reach $2700 per ounce by mid-2025.

In addition to the near-term risk-driven factors,we expect the demand for gold ETFs to accelerate in the coming months."

At the same time,UBS added,"We maintain our previous view that silver will benefit from the environment of rising gold prices."

Although demand from emerging markets,especially from central banks,Asian consumers,and investors,was the main driver of gold's rise at the beginning of 2024,the focus in recent months has completely shifted to the Fed and the outlook for the US economy.

In a low-interest-rate environment,interest-free gold usually benefits,and concerns about a recession often prompt investors to use gold as a haven.

An analysis by Bloomberg of six Fed easing cycles since 1989 shows that as rate cuts begin,gold,U.S.Treasuries,and the S&P 500 usually rise.

The Fed's rate cuts ended the turbulent period for the gold market,and some analysts pointed out that this will allow it to return to a more traditional trading pattern,especially the long-standing negative correlation between gold and real yields.

In recent years,this relationship has broken down,with gold prices at historical highs in an environment of soaring interest rates,supported mainly by huge purchases by central banks and a surge in demand from Asian investors and consumers.

However,in recent months,there have been signs that as more people bet on the Fed's shift,Western investors are pouring back into the gold market.

Over the past 12 weeks,gold ETF holdings have risen for 10 weeks,while long-only gold positions in gold futures on the New York Commodity Exchange (COMEX) have hovered near their highest levels in four years.

Goldman Sachs analysts also mentioned this in the reasons for the recent rise in gold prices.

The bank said that when the Fed cuts rates,capital usually flows into gold ETFs.

The analysts wrote: "We expect the Fed's easing cycle to gradually increase the holdings of gold ETFs,thereby boosting gold prices.

Goldman Sachs predicts that as Western capital pours into gold ETFs,central banks continue to hoard this precious metal,and investors seek to hedge geopolitical conflicts and economic recession risks,gold will reach $2700 by early 2025."