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Business News/ Markets / Commodities/  Gold hits new record high on rising US Fed rate cut expectations, renewed Middle East concerns

Gold hits new record high on rising US Fed rate cut expectations, renewed Middle East concerns

Gold prices hit record high fueled by US rate cut speculation and geopolitical tensions. Spot gold price reached $2450.49 per ounce. Central banks continue to accumulate gold. Silver prices also surged to multi-year highs driven by investment and industrial demand.

Gold prices hit record high.Premium
Gold prices hit record high.

Gold prices reached a new all-time high in today's trading session as the latest US inflation and retail sales data have fueled optimism that the Federal Reserve might implement at least two rate cuts this year. Additionally, renewed geopolitical tensions in the Middle East have further bolstered gold prices.

The spot gold price jumped to a record high of $2450.49 per ounce earlier in today's session. This year so far, the prices have jumped 18.65%, outpacing the returns of equities and bonds. 

Last week's data indicated a moderation in inflation, leading traders to anticipate a 65% chance of a US rate cut by September. Historically, gold tends to perform well during periods of declining interest rates, as investors gravitate towards it over income-producing assets like bonds.

Investors will be closely monitoring the minutes from the Fed's last policy meeting, set to be released on Wednesday, along with comments from various Fed officials.

Also Read: Explained: Why are central banks accumulating gold in large quantities?

In addition to the expectation of a rate cut by the US Fed, other major central banks are signaling their willingness to lower interest rates. Bank of England Governor Andrew Bailey hinted at possible rate cuts as soon as next month, while Sweden's central bank recently implemented its first interest rate cut in eight years.

Buying streak continues

Emerging central banks are continuing their momentum in gold purchases, with China leading the way. The People’s Bank of China (PBoC) has announced gold purchases for 18 consecutive months in April, bringing total official gold holdings to 2,264 tonnes by the end of April, an increase of 2 tonnes. This accounts for 4.9% of the PBoC's total reserves, the highest percentage ever.

In an effort to diversify its forex reserves away from the U.S. dollar, the country is selling record amounts of Treasury and US agency bonds. Beijing offloaded a total of $53.3 billion of Treasuries and agency bonds combined in the first quarter, according to Bloomberg calculations of the latest data from the US Department of Treasury. 

Also Read: Will the Indian stock market continue its upward momentum this week? Here's what experts say

Similarly, India experienced a significant rise in gold imports, more than doubling to USD 3.11 billion in April from USD 1.53 billion in March. During this period, gold prices in Delhi ranged between 76,400 and 67,755 per 10 grams.

Despite strong gold demand in March, the market saw an unexpected downturn as jewelers stocked up for the Indian wedding season. However, demand rebounded in April due to the marriage season and continued gold purchases by the central bank, marking a significant turnaround.

According to the World Gold Council, central banks purchased 290 tonnes of gold in the first quarter of this calendar year. These consistent and substantial acquisitions by the official sector underscore gold's significance in international reserve portfolios amid market volatility and increased risk.

Decade-high milestone for silver prices

Silver prices have recently reached multi-year highs. On Friday, spot silver prices crossed $30 an ounce, marking the highest level in over a decade. The precious metal closed 6.5% higher at $31.49 an ounce, the highest since February 2013. In today's trade, prices have crossed $32 per ounce. 

This year, spot silver has surged by 32%, outperforming gold and becoming one of the best-performing major commodities. The rally in silver prices has been driven by strong investment and industrial demand.

Also Read: Gold price gains for second consecutive week, silver surges to 11-year peak

In January, the gold-to-silver ratio exceeded 90, the widest spread since September 2022. It has since narrowed to around 80 and is expected to drop further to 70 if the Fed cuts rates and the US economy remains resilient.

Additionally, silver continues to benefit from its use in solar panels, which is projected to reach a record high this year, pushing the silver market into its fourth consecutive deficit.

Also Read: Hot Commodity Silver Sets Pace as Demand and Deficit Drive Rally

Base metals also continuing their winning streak this year. In today's trade on the London Metal Exchange, copper prices soared above $11,000 a ton for the first time. This surge is driven by increasing industrial demand and decreasing supply, which have boosted copper prices this year.

Meanwhile, the Chinese government has announced plans to purchase unsold housing inventory to address oversupply and prevent defaults by distressed developers. This is one of Beijing's boldest measures to stimulate economic activity. Following this announcement, industrial metals experienced a strong rally.



Disclaimer: We advise investors to check with certified experts before making any investment decisions.


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Published: 20 May 2024, 01:42 PM IST
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