Gold prices surge to record highs

Gold’s price has soared to record levels, driven by investors looking for safe havens and central banks.

According to LSEG, the yellow metal reached $2,141 an ounce, which was a record, surpassing the previous record set in December of $2,135. However, the gains were quickly pared back to trade at $2131, up 0.8 percent on the day.

The move on Tuesday is a continuation from the rally that began last Friday, sparked by growing expectations of a Federal Reserve interest rate cut in June due to weaker economic indicators. The lower borrowing costs benefit gold, an asset that has no yield. Investors feel they are not missing out on much by not investing their money in bonds.

The gold price has been surging for 16 months, up 30 percent from the level of $1,600 an ounce at the end of 2022. This is largely due to record purchases by emerging market central banks after the US weaponised its dollar as part its sanctions against Russia in response to its invasion and occupation in Ukraine.

In recent months, the precious metal has gained a second wind from what analysts describe as “phenomenal” purchases by Chinese consumers seeking a safe place to park their cash after local property and stock markets tumbled.
“It is a silent rally,” said Ross Norman. He was the chief executive officer of Metals Daily. “The western investor has nothing to do with it. “Gold continues to flow east.”

Analysts claim that the record-breaking gold price is even more impressive given the recent surge in interest rate. The Fed’s benchmark rates are still at 22-year highs of between 5.25 and 5.5 percent, which has dimmed the appeal of gold.

Gold is still a long way from its nominal all-time record of $3,355 an ounce, which was reached in 1980, when inflation driven by oil and the turmoil in the Middle East ended a nine-year bull market.

The ISM Manufacturing Purchasing Managers’ Index showed a contraction of US manufacturing activity that was much larger than expected on Friday.

This pushed gold past what the market called its previous “triple peaks” around the mark of $2,070, when the US was hit by the coronavirus in 2020, Russia invaded Ukraine 2022, and the US Banking Crisis erupted in last year.

Early signs of economic pain caused by high interest rates raised expectations the Fed would cut rates this June. This was also reflected on the recent decline in yields for government bonds.

Since the beginning of last week, two-year Treasury yields are down 0.23 percentage points to 4.56 percent. The traders now give a 85 percent probability that the Fed will deliver its first 0.25-percentage point cut in June. This is up from 70% early last week.

James Steel, precious-metals analyst at HSBC said that the latest gold move was not primarily driven by the changing expectations for rate cuts. These have fluctuated since the beginning of the year.

He warned that gold prices could drop as they did in December.

Gold is one of the assets in high demand.

Like in December, speculation has contributed to the rise of gold. The CME where Comex gold futures contracts are traded reported a three month high in volatility, which indicates that options traders were positioning themselves for a rise in bullion prices.