Gold prices hit a record high of $2,353 an ounce Monday morning, before slipping back to around $2,336. Geopolitical tensions and central bank purchases, as well as the looming rate cuts, fueled demand for gold.
Interest rate swaps indicate that the market expects the Federal Reserve to cut rates by two percentage points this year.
This was the seventh trading session that the metal had sold at a record-breaking price.
The expectation of a reduction in American interest rates — which is the main driver of the gold price — has eased during the last week. This is because the United States’ economy remains remarkably resilient. Friday’s latest jobs report showed that had added 303,000 roles , far exceeding expectations of 205,000.
The market price implied that traders see a 48% chance of a rate cut in June. This is down from 59% a week earlier. They also prefer two rate cuts this year rather than three.
Gold prices are driven by other factors .
The demand for gold has been boosted by the central banks. China’s central bank bought gold in March for the 17th consecutive month, according to data released on Sunday. China had 72.74 fine troy-ounces of gold as of the end March, up from 72.58 million at the end February.
The World Gold Council, an industry association, reports that central bank purchases have been a major driver of gold price over the last year. Demand from lenders of last recourse reached 1,037 tons last year. This is the second highest demand on record.
Gold and other precious metals have been pushed higher by the high level of geopolitical risks in the Middle East, Ukraine and elsewhere. Investors are looking for a hedge against uncertain times and to protect themselves from dollar assets that could be subjected to American sanctions.
Analysts from UBS Bank said that buyers of exchange-traded fund (ETF) have remained net sellers. ETF holdings are at their lowest level in four years.
UBS analysts have raised their target price for gold to $2,500 an ounce for the end of the year, based on the belief that when the Fed starts cutting rates, ETFs will increase demand.
The bank was aware that the strong US economy could delay any potential cuts. However, these setbacks are “smaller” than they had anticipated.
Silver prices rose by 1.1 percent to $27.77 an ounce. Platinum and palladium prices also increased.
It may seem that the extraordinary rise in gold prices is at odds with the comments made by Jerome Powell last week, the chairman of the Federal Reserve. In a speech to Stanford University Business School, Powell said that the American central bank is “not done yet” with its fight against inflation.
Investors see falling interest rates as a positive for gold. Real rates, or interest rates adjusted to inflation, are higher when the gold price is less attractive.
Recent US economic data has prompted traders’ expectations to be revised down in relation to the rate of interest rate reductions. The inflation rate, which is currently at 3.2%, is above the target set by the central bank of 2%. Official measures of the US economy’s payrolls have also exceeded expectations for a 303,000 increase in March.
Markets now expect a rate cut of about 48 percent in June. This is down from 59 percent a week earlier. They also favor two rather than three cuts in this year.
Investors may also use gold as an inflation hedge, if the measure stays higher than expected. This is because the metal’s value is believed to be stable, while other assets are falling.
Gold’s rally is not just about the expectation of rate cuts. This could be a factor in the metal holding its gains. The central banks are increasing their gold reserves to hedge against inflation and to reduce their dependence on the dollar. China led the gold buying in March, increasing its reserves for the 17th consecutive time, according to data from official sources.
The price of gold has been boosted by the continued geopolitical turmoil, which is considered a safe-haven asset. If political and economic uncertainties remain high, the metal’s price could rise further.