Rate cuts set gold on track for best quarter in eight years

Gold prices were heading for their best quarter in more than eight years on Friday, having hit a series of record highs in recent sessions as the start of US monetary easing boosted the appeal of non-yielding bullion.

Spot gold was down 1% at USD 2,643.88 per ounce by 1742 GMT after scaling all-time highs for four consecutive sessions. The market hit a historic USD 2,685.42 on Thursday.

US gold futures settled 0.9% lower at USD 2,668.1. The precious metal, a traditional hedge against geopolitical and economic uncertainty, has gained around 14% this quarter, its strongest performance since the first quarter of 2016 and is up around 28% this year, the most in 14 years.

With bets on more rate cuts in future after last week’s half-percentage-point cut by the Federal Reserve, speculative demand for the metal has driven gold to “oversold” technical levels. Even so, some banks expect prices could rise towards USD 3,000.

“USD 3,000 per ounce levels this year are quite possible. There’s a lot of things out there that could throw gas on the market,” said Phillip Streible, chief market strategist at Blue Line Futures.

“You could see a breakdown in Middle East peace talks, the labour market deterioration could continue, Fed could cut rates by another 50 bps, and China could add more stimulus,” these factors will support the gold market, Streible added.

The rally also damaged physical demand in top consumers – China and India – where some were cashing in on their holdings instead of buying this week.

Gold exchange-traded funds (ETFs) that are backed by the physical metal, a key pillar of demand, saw modest net inflows last week and are yet to fully contribute to the rally, though analysts expect more activity from ETFs in coming months.

“Speculation, especially in US futures, has been driving this rally, but … for prices to hold or climb further, we need stronger Western investor interest. Modest ETF inflows are a good start, but with economic uncertainty still on the horizon,” said John Reade, senior market strategist at the World Gold Council.

Silver prices surged, benefiting from a spillover impact from gold, though some analysts warn that the rally may fade.

(Reporting by Anjana Anil, Anushree Mukherjee, Polina Devitt, Swati Verma, and Sherin Varghese; Editing by Tasim Zahid)