By
Temitope Olatunji
April 26th, 2024
A UBS strategist says that both gold and Bitcoin will benefit from the Fed when the agency decides to cut interest rates.
According to global financial services giant UBS, both gold and silver are poised for significant increases this year, especially when the United States Federal Reserve begins to cut interest rates. Joni Teves, precious metals strategist at UBS, expects that gold will be “pushed higher by a Fed easing.” Teves expects the yellow metal to reach $2,200 per ounce before 2024 ends.
UBS Is Bullish on Gold This Year
Teves also expects the Fed’s potential rate cut, whenever it happens, to weaken the dollar. While this may be negative for the dollar, it could be positive for the price of gold. This is because a weaker dollar will attract international buyers because the price of gold will be cheaper, thus more affordable for them.
Generally, the relationship between gold and interest rates is an inverse one. Gold becomes more attractive to buyers when interest rates are reduced, especially compared to alternative assets like bonds. These alternative assets tend to correlate directly with interest rates, as their returns are smaller when the interest rate is low.
Gold has also enjoyed increased appeal as a safe-haven asset, especially since the recent conflict between Israel and Hamas began in October. Last December, the price of gold crossed a record high of $2,100, spurred by the geopolitical problems from the conflict. At the time, a World Gold Council survey concluded that 24% of the world’s central banks intend to increase their gold reserves this year. Teves says the geopolitical risks and micro uncertainty will encourage investors to “build allocations to gold.”
Silver Is Not Left Out of UBS Forecast
UBS’ bullishness also extends to silver. Teves stated:
“In a scenario where the Fed is easing, we think silver can do really well. It tends to outperform a move in gold. Silver has been underperforming gold quite a lot. So there is a lot of catching up to do and I think the move could be quite dramatic.”
Most people do not consider silver a safe haven. They consider gold. Analysts think this is why silver usually underperforms gold. However, Teves believes that, like gold, silver will benefit from the Fed easing interest rates.
Unfortunately, the Federal Open Market Committee (FOMC) is not ready to cut interest rates. Last week, the FOMC’s meeting ended with the Committee deciding to leave rates unchanged. Fed Chair Jerome Powell also said that the Fed will likely make the same decision at the upcoming March meeting. According to the CME FedWatch Tool, the probability that the Fed will maintain current rates is 84.5%.
Bitcoin So Far
The price of Bitcoin has not reacted significantly to the Fed’s decision to leave interest rates unchanged. According to CoinMarketCap data, Bitcoin is trading at $43,100 after climbing nearly 2% in the last seven days. While a reduction in interest rates could free up more funds for investors to consider buying more Bitcoin, there is a little more attention on other events in the Bitcoin sector and their potential effects on the king coin.
For instance, the recently approved spot Bitcoin exchange-traded funds (ETFs) have ensured several billions flowing into the Bitcoin market. There is also the upcoming halving event expected in April. Analysts expect a significant increase in Bitcoin’s price following these events, but not immediately.