The gold price reached a new record on Tuesday, as the prospect of Federal Reserve rate cuts and a Donald Trump second term in office provided a double boost for the precious metal.
Gold rose 1.7 percent to $2,465 per troy-ounce, surpassing the record set in May. Gold’s latest gains came after US inflation data that was weaker than expected last week raised expectations of lower Fed lending costs. This tends to boost non-yielding investments such as gold.
After the weekend’s attempted assassination of Trump, gold prices rose further. This increased his chances of winning a second term. The former president’s tax-cutting plans and tariffs are expected to increase US budget deficits and inflame global tensions. This could lead to longer-term inflationary forces and enhance gold’s appeal as a safe-haven.
Suki Cooper is a precious metals analyst with Standard Chartered. She said, “It all started with a softening of US inflation data which helped to reignite expectations for rate reductions.” She added that the attack on Trump “has reignited appetite for looking for safe havens, and inflation hedges”.
Gold’s all-time peak caps a 20 month rally that saw it rise by 50 percent as central banks purchased record quantities of bullion in order to reduce their reliance on the US Dollar for their reserves.
In October, gold gained further momentum when conflict broke out in the Middle East. Chinese consumers have also been a voracious buyer of the metal in this year, despite the disappointing performance of local stocks, property markets, and currency markets.
Nicky Shiels is the head of metals strategies at MKS Pamp. A Swiss precious metals refinery, and trader. He said that investors are nervous about rising US inflation, and budget deficits, under a Trump Administration.
Shiels said that investors are concerned that Trump’s desire to lower interest rates could put the Fed’s independence in question.
The Fed’s decision to lower borrowing rates faster than expected has also contributed to the 6 percent rise in gold this month. The yellow metal surged after signs of a slowdown in the US job market at the beginning of the month. Last week’s fall in inflation was also a boost.
The markets now expect two to three rate cuts in December, as opposed to just two the week before.
According to Bernard Dahdah of the French bank Natixis, the prospect of a Trump win could encourage central banks to purchase more gold despite the high price, because “acrimony between the US-China relationship” drives them to continue seeking alternatives to the US dollar.
He said: “I wouldn’t be surprised if the new norm is $2,300 or more.”
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