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As global economic uncertainty increases, the market is closely watching the Fed's policy moves. On August 27, Ven Ram, a cross-asset strategist at Bloomberg Markets Live, pointed out in an analysis article that if the Fed cuts interest rates on a large scale as expected by the market, the price of gold is expected to break through the $3,000 per ounce mark in the current economic cycle, and even reach a high of $3,229.

Analysts pointed out that the Fed’s interest rate cut will be a key factor driving up gold prices.If slowing U.S. inflation and a continued cooling labor market allow it to cut its benchmark interest rate by a cumulative 225 basis points by the end of 2025, gold could reach $3,229.

The forecast is based on historical data on changes in gold prices and benchmark interest rates during the Federal Reserve's easing cycle since the beginning of 2000. The data shows that for every 25 basis point reduction in the benchmark interest rate, gold prices typically rise by about 6.3%.If the Fed's easing actions are more modest, the peak gold price will be lower than the above forecast.

The gold market has shown strong momentum so far this year, with prices rising 22% cumulatively.

At the same time, the decline in inflation-adjusted yields in the United States also provided strong support for the rise in gold prices.In particular, the 10-year Treasury yield has fallen nearly 90 basis points from last year's high, further enhancing the attractiveness of gold.

It is worth noting that the price of gold is also extremely sensitive to changes in the US dollar exchange rate. Since the beginning of this quarter, the US dollar index has fallen by nearly 5%, while the price of gold denominated in US dollars has accelerated by nearly 9%, compensating for the negative impact of the decline in the US dollar index. This phenomenon once again verifies the negative correlation between gold and the US dollar, and also provides an important market reference for investors.

In the current Fed monetary policy cycle, the convexity of gold has been fully demonstrated. In 2022, gold still maintained its value stability in the adverse environment of the Fed's aggressive 425 basis point rate hike. Last year, despite the Fed's continued 100 basis point rate hike, gold prices still achieved a 13% increase.

However, the analysis also pointed out that when the Fed's interest rate cuts are accompanied by obvious systemic pressures, the increase in gold prices tends to be more significant.Historically, gold prices have risen sharply during the 2007-2008 financial crisis and the outbreak of the epidemic in 2020. However, at present, as there are no obvious signs of systemic crisis in the market, the upside of gold prices may be suppressed to a certain extent.

At the same time, the market also needs to be alert to the risk of expectations of easing being dashed. Although the market expects the Fed to cut interest rates sharply to an end-point interest rate level of around 3%, this is not far from the Fed's own forecast of a long-term interest rate of 2.8%, and there is uncertainty. In fact, although the US labor market is cooling, employers are still actively hiring, and the inflation rate is approaching the Fed's expected target. If the labor market remains balanced and the inflation rate stabilizes near the current level, the Fed may not be able to cut interest rates as deeply as the market expects. This will directly affect the future trend of gold prices.