After the early work of central banks and high net worth individuals it’s time for small investors to drive the gold price higher as they shift funds into gold-backed exchange-traded funds (ETFs) with $2900 an ounce the next milestone.

Missing in action for much of the year, there is evidence emerging that ETFs are joining the gold game as small investors are drawn in by worsening geopolitics, and the start of an interest rate falling cycle.

The star performance of gold, which has risen by 59% over the last two years from $1628/oz in late 2022 to a record high of $2582/0z has also created a FOMO effect (fear of missing out).

A survey earlier this month of ETF activity by the World Gold Council, an industry lobby group, found that withdrawals from gold-backed ETFs had started to reverse in May with positive inflows continuing into August, the latest month measured.

North American investors are leading ETF investment, accounting for 17.2 tons of gold in August, comfortably ahead of Europe’s 7.9 tons taking the total amount of gold in ETFs to 3181.7 tons, enough to represent the world’s third largest hoard of gold, more than Italy and France but well short of the 8133.5 tons held by the U.S.

The return of ETFs as an important factor in driving the gold price higher was the subject of a research paper released on Monday by ANZ, an Australian bank, three days before the keenly awaited interest rate decision of the U.S. central bank, the Federal Reserve.

Jumbo 0.5% rate cut possible

While the widely signalled rate cut has been worked into asset pricing over the past few months it’s the size of the cut which will be most keenly watched with 0.25% seen as a certainty, but a “jumbo” cut of 0.5% possible.

ANZ said it expected a recovery in “strategic investment” in gold would push the price higher.

“A 100-basis point (1%) cut in rates could see 200-to-250 tons of EFT net inflows over the coming months,” the bank said in a comment headed “A golden ascent”.

“The return of strategic investment demand will likely drive the price trajectory upward, potentially reaching $2900/oz by the end of 2025.”

Other gold forecasters are more optimistic. Lichtenstein-based banker Ronald-Peter Stoeferle told the Beaver Creek Precious Metals Summit in Colorado last week that the price was on track to reached $4800/oz in 2030.

Falling interest rates, especially lower real rates after allowing for inflation, are expected to act like a magnet for small investors who have spent much of the past 12 months on the sidelines as central banks led the way.

“While market expectations can be volatile, falling interest rates in the coming quarters look certain,” ANZ said.

“We expect 200 basis points (2%) in rate cuts in this monetary easing cycle, which will pave the way for lower real rates.

Structural Price Drivers

“The structural drivers for gold’s price, lower yields and a weaker U.S. dollar, will be increasingly supportive after their inverse relationship weakened during the tightening cycle of 2022-23.

“Strong central bank purchases and resilient physical demand will be joined by healthy inflows into gold-back ETFs.

“We expect gold prices to move towards $2700/oz in the short term and reach a high of $2900/oz by the end of 2025.”