Gold hits record high as speculators expect rate cuts

A rally has been sustained by gold prices reaching an all-time high, fueled by anticipations that the US Federal Reserve might reduce interest rates early the following year.

Overnight in Asian trading, prices surged by nearly 2 percent to a record high of $2,111 (approximately £1,665), following remarks by Fed Chair Jerome Powell on Friday that the bank’s initiatives were bearing fruit.

At 8:30 a.m. GMT, however, local gold was down 0.4% at $2,062 per ounce, and US gold futures were down 0.4% at $2,082.

The correlation between gold and US interest rates is generally negative, with gold appreciating when rates decline and vice versa.

Economic Instability and Geopolitical Unrest

Contrarily, gold tends to appreciate amidst periods of economic instability or geopolitical unrest, as exemplified by the past two years.

A 0.3% increase in the dollar index increased the bullion cost for holders of other currencies.

Derren Nathan, director of market research at Hargreaves Lansdown, stated, “US markets have returned to 12-month highs as we enter the final furlong of 2023.”

However, the optimism that monetary policy is beginning to accomplish its objectives, as Federal Reserve Bank Chairman Jerome Powell expressed on Friday, has not yet permeated Asian markets during overnight trading.

Victoria Scholar, director of Investment at Interactive Investor, stated, “The precious metal has gained approximately 5% in the past month and 13.5% so far this year.”

Amid a tumultuous global economic environment and the Hamas conflict, investor demand for safe-haven assets such as gold has increased.

Gold’s Appeal Amidst Economic Shifts and Global Sentiment

Numerous individuals consider gold the quintessential “haven” asset, as they believe it maintains its value during declines in other asset classes and protects against inflation.

The price of gold decreased from $2,039 per ounce in March to $1,618 per ounce in October.

“Expectations for Fed rate cuts next year have put downward pressure on the US dollar, which is trading near three-month lows, thereby enhancing gold’s appeal,” said the scholar.

According to a recent survey by the World Gold Council, 24% of all central banks intend to increase their gold reserves within the following year. This could spur additional gold price appreciation in 2024.

Nathan stated, “It is premature to determine whether or not this signifies the beginning of a Santa Rally.” Despite growing optimism that interest rates have reached their zenith, the region is being burdened by a series of recent unfavorable output indicators from China.

The belief that monetary policy will not become any more restrictive has contributed to bullion prices reaching all-time highs. An ounce of the lustrous substance costs approximately $2,100, and rumors are circulating that additional quantities may be forthcoming.

Platinum decreased by 1.3 percent to $920.39 per ounce, palladium by 2.6 percent to $974.12, and silver by 1.3% to $25.13 per ounce.

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