Gold prices have soared to an all-time high, reaching $2,135 per ounce on Monday, surpassing the previous record of $2,072 set in August 2020.
This surge is driven by growing expectations of interest rate cuts, a weaker dollar, and escalating geopolitical tensions.
Investors are increasingly confident that the US Federal Reserve’s aggressive interest rate hikes have successfully curbed inflation and may begin to reduce borrowing costs as early as March next year.
Higher interest rates typically increase the yields on assets like US Treasuries, attracting investors.
However, when interest rates are low or expected to fall, demand for Treasuries decreases, making gold, which doesn’t yield interest, more appealing.
The yield on the benchmark 10-year US Treasury bill has dropped from a 16-year high of 5% in mid-October to 4.3% on Monday.
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Daria Efanova, head of research at Sucden Financial, noted, “The expectations of the end of the tightening cycle have been priced in, pushing longer-term yields lower. This has created a more favorable environment for gold as a non-yielding asset.”
John Reade, a market strategist at the World Gold Council, suggested that gold prices could “quite possibly” exceed Monday’s record high, given investors’ predictions of several rate cuts over the next year.
These rate predictions have also negatively impacted the US dollar, making gold more attractive.
The dollar fell 3% last month against a basket of six major currencies, making gold less expensive for investors outside the US, which should have increased demand and, consequently, gold prices.
Gold has also benefited from a deep sense of global unease. JPMorgan CEO Jamie Dimon has suggested that this may be the most dangerous time the world has seen in decades.
Investors often view gold as a safe haven because it is a tangible, scarce asset that theoretically retains its value. Gold prices have increased 10% so far this year.
Reade added, “The geopolitical risk environment appears to have changed. Not just (because of) Russia invading Ukraine, not just the terrible things going on in Israel and Gaza, but trade tensions between the US and China, concerns about what will happen in the South China Sea, concerns about what China will do in Taiwan.”
This heightened global tension has prompted central banks in emerging markets to increase their gold reserves.
Policymakers in these countries, alarmed by the freezing of the Russian central bank’s foreign exchange reserves in the West, have turned to gold as a perceived safer store of value.
The World Gold Council reports that central banks in emerging markets purchased an average of 473 metric tons of gold annually between 2010 and 2021.
However, last year they bought 1,100 metric tons, and in the first three quarters of this year, 800. This rapid pace of purchases “could continue for years, if not decades,” according to Reade.
Victoria Scholar, head of investment at Interactive Investor, noted, “Concerns about the shaky global economic backdrop and the Israel-Hamas conflict have fueled investor demand for safe-haven assets like gold. Plus, expectations for Fed rate cuts next year have put downward pressure on the US dollar… adding to gold’s attractiveness.”
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Millions of Americans know NOTHING about this…
And it’s possible that government officials want to keep this hidden…
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