Gilded Heights: Gold Prices Hit Unprecedented Highs Fueled by Rate Cut Buzz and Dollar’s Dip
Gold prices soared to an unprecedented peak on Monday, driven by mounting anticipation of forthcoming interest rate reductions, a weakened dollar, and escalating geopolitical tensions. The value of the precious metal surged by up to 3% during Monday’s trading session, reaching $2,135 per ounce, surpassing the prior record of $2,072 set in August 2020. However, prices retreated later in the day, settling at $2,023 by 11:57 a.m. ET.
In recent weeks, investor confidence has grown, speculating that the US Federal Reserve, having effectively curbed inflation through assertive interest rate hikes, may commence a series of borrowing cost reductions as early as March next year.
The conventional wisdom is that higher interest rates elevate yields on assets like US Treasuries, attracting investors. Conversely, when interest rates are low, decreasing, or anticipated to decline, demand for Treasuries wanes. In such scenarios, gold, devoid of interest payouts, becomes relatively more appealing. The yield on the 10-year US Treasury bill, a key benchmark, has subsided from its 16-year peak of 5% in mid-October to 4.3% on Monday.
Daria Efanova, Head of Research at Sucden Financial, noted on Monday, “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.”
According to John Reade, a market strategist at the World Gold Council, the association of gold producers, the prevailing sentiment among investors foretelling multiple rate cuts over the coming year could potentially propel gold prices even higher than Monday’s historic peak.
These rate forecasts have also exerted downward pressure on the US dollar, further enhancing the attractiveness of gold. Traditionally, higher interest rates attract foreign capital, bolstering the currency’s value. Conversely, when rates decline, the appeal diminishes, contributing to a weakened US dollar.
