Gold has surged past $2,500 per ounce for the first time, driven by expectations that the Federal Reserve is nearing an interest rate cut.

On Friday afternoon, spot gold traded above $2,500/oz, surpassing last month's record, according to ING analyst Ewa Manthey.

This increase comes in response to disappointing US housing data, which has intensified speculation about more significant and quicker cuts by the Federal Reserve.

“Our US economist now sees a 50bp cut in September followed by a series of 25bp moves that would get us back to a Fed funds rate of around 3.5% by next summer”.

Lower borrowing costs are beneficial for gold, as it yields no interest.

The Fed has maintained its key policy rate within the 5.25% to 5.5% range—the highest in over twenty years—since July of last year. ING’s US economist now anticipates a 50 basis point cut in September, with additional 25 basis point reductions to potentially bring the Fed funds rate to around 3.5% by next summer.

In 2024, gold prices have risen by more than 20%, fueled by geopolitical uncertainties, expectations of Fed rate cuts, and strong demand from central banks. Analysts expect gold prices to remain influenced by the Fed’s rate decisions and geopolitical events.

The ongoing war in Ukraine, conflicts in the Middle East, and US-China tensions are likely to sustain safe-haven demand for gold in the near term.

The upcoming US presidential election in November is also expected to contribute to gold’s upward trajectory through the end of the year.

Central banks are anticipated to continue increasing their gold reserves, providing further support.

ING projects gold to average $2,380 in the third quarter, with prices potentially peaking at $2,450/oz in the fourth quarter, leading to an annual average of $2,301/oz.

“We see gold averaging $2,380 in the third quarter and prices peaking in the fourth quarter at $2,450/oz, resulting in an annual average of $2,301/oz”, ING said.