In early trading on Tuesday, gold prices soared to an unprecedented all-time high, reaching $2,141 per troy ounce. The surge, up approximately 5.6% in the past month and 16% in the last year, is believed to be fueled by recent economic data, which has heightened investor expectations of widespread rate cuts by global central banks.
Gold, often considered a safe haven during economic uncertainty, has seen solid demand as central banks continued acquiring it as a hedge against inflation. The precious metal’s lack of investment yield makes it less appealing in times of rising interest rates when higher yields can be found in bonds and other assets.
However, the anticipation of interest rate cuts by global central banks has been on the rise over the past year amid cooling economic growth. This week, nearly 70% of U.S. investors now expect the Federal Reserve to initiate interest rate cuts in June, up from 58% the previous week, according to the CME Group’s FedWatch Tool.
The moderation of inflation has contributed to hopes for rate cuts, despite lingering uncertainty related to upcoming elections. Citi analysts noted that this uncertainty could continue supporting gold prices. Additionally, analysts at Berenberg suggested that a potential victory by Donald Trump in the U.S. presidential election would further enhance gold’s prospects.
Nevertheless, analysts at ING emphasized that the Federal Reserve’s policy remains a crucial factor influencing gold prices in the coming months. As a result, gold prices may continue to track investors’ short-term expectations regarding rate cuts.
