Gold (XAU/USD) surged to a new record high in the $2,610s on Friday, driven by heightened expectations that global central banks will follow the Federal Reserve’s recent policy easing and interest rate cuts. Lower interest rates enhance gold’s attractiveness, as they reduce the opportunity cost of holding this non-interest-bearing asset.
Following the Fed‘s decision to cut interest rates by 50 basis points on Wednesday, several other central banks took similar steps. The South African Reserve Bank (SARB) cut its key interest rate for the first time since the COVID pandemic, while the Central Bank of the Philippines made a substantial cut of 250 basis points to 7.0%. The Reserve Bank of India is also anticipated to follow suit in its next meeting.
In contrast, the People’s Bank of China (PBoC) maintained its key lending rates, although the current rates are at historic lows following a surprise cut in July. Meanwhile, the Bank of Japan (BoJ) kept its rates unchanged, despite speculation about potential hikes.
Gold’s rally was initially fueled by the Fed’s decision, pushing it above the previous high of $2,600. However, the upside was somewhat limited by the Fed’s optimistic outlook for U.S. economic growth, projected to remain stable at around 2.0% per year until 2027. This perspective suggests a “soft landing” for the economy, which, while generally positive, may dampen the demand for safe-haven assets like gold, leading to a quick pullback after reaching peak levels.
Moreover, rising geopolitical tensions, particularly the escalation of conflict in the Middle East, have added to gold’s appeal as a safe haven. Reports of Israel using advanced technology to target Hezbollah agents have heightened concerns about potential further escalations, prompting increased safe-haven flows into gold.
As the market continues to react to both economic and geopolitical developments, gold’s trajectory remains closely tied to central bank policies and global stability.
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