While the anticipation of the first interest rate cut is building, so are recession fears. That could add another catalyst for higher gold prices as forthcoming economic data could hint at slower growth.
Economists at global investment firm Goldman Sachs are forecasting that the likelihood of a recession is 25%, which presents limited risk. Still, that’s 10% higher than their original forecast.
The 25% risk is deemed limited in nature according to Goldman Sachs economists. However, the general populace could overreact to the news. Goldman does expect job growth to improve during August after a sluggish July. The firm is also expecting the U.S. Federal Reserve to implement the first rate cut of 25 basis points. Still, this could be larger if the August jobs report mirrors July.
“The premise of our forecast is that job growth will recover in August and the FOMC will judge 25bp cuts a sufficient response to any downside risks,” the Goldman economists wrote. “If we are wrong and the August employment report is as weak as the July report, then a 50bp cut would be likely in September.”
Gold prices are up over 20% and have risen 4% within the last month. The precious metal doesn’t appear to be following the typical summer slowdown and fall could bring even more gains with a rate cut in the making.
“Gold has a real shot at breaking above its previous high as the U.S. economy weakens and the odds of a rate cut increase,” said Adrian Day, President of Adrian Day Asset Management, in a Kitco News report. “At his press conference earlier in the week, Fed Chairman Jerome Powell was almost champing at the bit to cut rates but waiting for the opportunity to do so. He now has that opportunity. In the last several rate-cutting cycles, when the Fed starts to cut rates, gold moves up.”
2 Options to Get Gold Exposure
The bright prospects for gold brings to mind two options for exposure from Sprott — the Sprott Physical Gold Trust (PHYS) and the Sprott Gold Miners ETF (SGDM). The former offers a pure gold play while the latter offers indirect exposure via gold miners.
PHYS is for investors who want the more tangible gold investment experience. They hold the option of converting their PHYS shares into physical bullion. This offers feasibility and flexibility when it comes to adding the precious metal to diversify a portfolio. Or likewise, they can retain their shares of PHYS and still get gold exposure without having to store the physical commodity.
SGDM can build off gold’s demand momentum with its exposure to miners. The fund seeks investment results that correspond generally to the performance of the Solactive Gold Miners Custom Factors Index. This index tracks the performance of large gold companies found on Canadian and major U.S. exchanges.
For more news, information, and analysis, visit the Gold/Silver/Critical Materials Channel.
