The price of gold exceeded the $2,500 per ounce mark for the first time, supported by hopes that the US Federal Reserve is moving closer to cutting interest rates.
Spot gold rose as much as 2.2% on Friday, beating the previous record set last month, as disappointing U.S. housing data fueled expectations that the Fed would make swift and deeper rate cuts. Lower interest rates are generally positive for gold, as it does not pay interest.
The precious metal has risen more than 20 percent this year as optimism grows over monetary easing and large purchases by central banks. It has also become more sought after as a safe-haven asset due to rising geopolitical risks, including tensions in the Middle East and Russia’s war with Ukraine.
Gold prices soared at the start of the year – surprising seasoned analysts and veterans, as there wasn’t always a clear macroeconomic catalyst to justify the price increase. Gold prices maintained these gains even as traders scaled back bets on the timing of interest rate cuts. Recently, gold prices have edged higher on widespread expectations that U.S. authorities will soon begin cutting interest rates.
A flurry of US data on recent activity has convinced markets that the Federal Reserve is close to cutting borrowing costs from more than two-decade-high levels, with the metal’s conventional drivers returning to the forefront.
There is debate about how much the Fed could cut interest rates, as recent economic data has provided conflicting signals about the state of the US economy.
Gold investors “typically tend to believe the Fed will be more aggressive in easing monetary policy,” said Bart Melek, global head of commodity strategy at TD Securities. Prices could continue to rise to $2,700 in the coming quarters as “macroeconomic/monetary and central bank policies line up,” he said.
Positioning of the investor
Speculators increased their bullish bets on gold futures on the Comex to a nearly four-year high in the week ended Aug. 13, data from the Commodity Futures Trading Commission showed. At the same time, gold holdings in exchange-traded funds have risen in recent months after several years of outflows, data compiled by Bloomberg show.
Traders on Friday examined the latest economic data for clues to the outlook for Fed policy. Figures showed that new home construction in the U.S. fell in July to the lowest level since the aftermath of the pandemic as builders responded to weak demand.
This is “another indication that a recession is imminent,” said Bob Haberkorn, chief market strategist at RJO Futures. The Fed will cut interest rates “and more than previously expected.”
The spot price of gold rose 2.1% to $2,508.82 per ounce (as of 4:06 p.m. in New York). Silver and palladium rose, while platinum was little changed.
