Gold prices hit a record high amid expectations of a US interest rate cut:
Gold prices saw a notable rise at the start of the second quarter of the year,
buoyed by the increasing likelihood of a Federal Reserve interest rate cut and rising geopolitical tensions.
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Gold Price Rise
Gold reached $2259.69 per ounce on Monday morning, up 1.3% from last Thursday’s close,
after hitting a series of price peaks in recent sessions.
Data released on Friday showed a slowdown in the Federal Reserve’s preferred inflation gauge,
the core Personal Consumption Expenditures index, for February,
supporting the case for lowering borrowing costs despite the central bank’s cautious stance.
Reasons for the Rise
A combination of positive factors has pushed gold prices up by 14% since mid-February,
including expectations that major central banks will ease their monetary policies,
and increased tensions in regions such as the Middle East and Ukraine.
Large purchases by central banks, especially in China,
and increased consumer interest in gold amid ongoing crises in Asia’s largest economy, have also contributed.
Federal Reserve Policy
In related news, Federal Reserve Chair Jerome Powell, following the inflation data release,
stated that the figures “align largely with our expectations,” indicating no rush to cut interest rates.
Later this week, investors will have another opportunity to assess the US economic outlook and the Fed’s policy stance.
Job growth will increase by at least 200,000 for the fourth consecutive month.
Swap markets indicate a 61% chance of a Fed rate cut in June, up from 57% on Thursday.
Low interest rates typically positively affect gold, which does not yield a return.
Warren Patterson, Head of Commodities Strategy at ING Group NV, noted that “the inflation data,
particularly Powell’s comments, gave another boost to gold prices,
as the market becomes more convinced that the Fed will begin cutting interest rates in June.”
Chinese Demand
The spot gold prices rose by 1.2% to reach $2257.61 per ounce ,
after having increased by 3% last week. The 14-day Relative Strength Index (RSI) was close to 79 points,
exceeding the 70-point level, which indicates to some investors that the prices may have risen too significantly and too quickly.
Additionally, the Bloomberg Spot Dollar Index decreased by 0.1%, while silver, platinum, and palladium prices increased.
Demand for gold in China has been prominent in recent quarters,
with the Chinese central bank boosting its gold reserves every month for the past 16 months.
Moreover, buying gold has become increasingly popular among Chinese youth.
Positive Gold Outlook
Positive gold forecasts have received support from several major financial institutions.
Among them, JP Morgan Chase & Co. declared gold as its top pick in the commodities sector last month,
anticipating that the price per ounce could reach up to $2500 this year.
Similarly, Goldman Sachs Group Inc. sees the potential for gold prices to hit $2300 per ounce,
highlighting the benefits of a possible cut in US interest rates.
However, the rise in gold prices has not attracted investors who prefer to acquire the metal through exchange-traded funds (ETFs).
Global holdings in gold ETFs declined by more than 100 tons in the first quarter,
reaching their lowest levels since 2019 by mid-March before making a slight recovery, according to Bloomberg data.
Gold prices hit a record high amid expectations of a US interest rate cut