Summary: Gold prices soared to a new record high on Monday, driven by expectations of a U.S. interest rate cut and heightened demand for the precious metal as a safe haven asset. The surge was fueled by softer U.S. inflation data, which reinforced expectations of a rate cut by the Federal Reserve in June. Despite ongoing uncertainties, such as low liquidity due to Easter Monday closures in certain markets, gold’s upward momentum remained strong.
Key Points:
- Record High: Gold prices extended their rally, reaching unprecedented levels on Monday, with spot gold surging by 1.1% to $2,253.53 per ounce and hitting an all-time high of $2,262.19 earlier in the session.
- Rate Cut Expectations: Anticipation of a U.S. interest rate cut, either in May or June, intensified as softer U.S. inflation figures emerged. Traders are pricing in a 69% probability of the Federal Reserve initiating rate cuts in June, according to the CME Group’s FedWatch Tool.
- Central Bank Demand: Central banks globally have been bolstering their gold reserves, driven by geopolitical risks, concerns over domestic inflation, and the depreciation of the U.S. dollar. This increased demand from central banks has contributed to the upward trajectory of gold prices, underscoring the metal’s status as a strategic asset amidst uncertain economic conditions.
Gold prices continued their upward surge, reaching yet another milestone on Monday, buoyed by expectations of a U.S. interest rate cut and the enduring appeal of gold as a safe haven asset. Spot gold surged by 1.32% to reach $2,265.53 per ounce, while U.S. gold futures soared over 2% to trade at $2,286.39 per ounce.
Joseph Cavatoni, a market strategist at the World Gold Council, expressed excitement about the current trajectory of gold, attributing it to growing confidence among market speculators regarding potential Federal Reserve cuts. He emphasized, “What’s really driving it is, I think, many market speculators really getting that confidence and comfort [in] the Fed cuts.”
Market analysts anticipate the U.S. Federal Reserve to implement rate cuts either in May or June. The recently released U.S. inflation data indicated a 2.8% year-on-year increase in February, a factor likely to influence the Federal Reserve’s stance on interest rates.
Gold prices hit a record high on Monday, as softer U.S. inflation figures strengthened expectations of an interest rate cut by the Federal Reserve in June. Spot gold surged by 1.1% to $2,253.53 per ounce, hitting an all-time high of $2,262.19 earlier in the session. U.S. gold futures rose by 1.8% to $2,279.50.
The core reading, now at its lowest level in almost two years, potentially provides justification for the Fed to initiate its rate-cutting process sooner rather than later, according to Jun Rong. Fed Chair Jerome Powell commented positively on the latest U.S. inflation data, noting that U.S. prices moderated in February, with the PCE price index rising by 0.3%.
Traders are currently factoring in a 69% likelihood of the Fed commencing rate cuts in June, according to the CME Group’s FedWatch Tool. Lower interest rates diminish the opportunity cost of holding gold. Gold witnessed its most significant monthly increase in over three years in March, fueled by a combination of rate-cut expectations, robust safe-haven demand, and central bank acquisitions.
Ilya Spivak, head of global macro at Tastylive, cautioned that the current price movements are occurring in a low liquidity environment due to many European and APAC markets being closed for Easter Monday, suggesting the potential for reversals in the coming days.
The global surge in gold prices during March, up by 9%, was driven by anticipations of U.S. Federal Reserve interest rate cuts and increased demand for safe-haven assets.
Despite maintaining interest rates at its recent March meeting, the Fed reiterated its forecast for three interest rate cuts this year, further boosting bullion prices. Overseas demand also contributed to the upward trajectory of gold prices, as highlighted by Caesar Bryan, portfolio manager at Gabelli Funds.
Central banks worldwide have been significantly increasing their gold purchases to diversify reserve portfolios amidst geopolitical uncertainties, domestic inflation concerns, and the weakening U.S. dollar, noted Cavatoni from the World Gold Council. He emphasized the strong case for continued central bank acquisitions, although he suggested monitoring the size and duration of these purchases.