Boosted by the Federal Reserve’s expectations of an imminent cut in interest rates, coupled with the recent weak economic data, gold hit record highs under the impetus of risk aversion.
On Tuesday (March 5), the spot gold price soared to $ 2141.60 per ounce, before narrowed gains to 0.6%. The April gold futures contract on the New York Mercantile Exchange also peaked at $2,150.50 during the session, falling back to near $2,134.80 before the market close.
The precious metal has risen by about $100 in the past five trading days, driven by a combination of monetary policy easing expectations, geopolitical tensions and the risk of a stock market pullback. Compared to a year ago, the price of gold has risen a cumulative 15 per cent.
Concerns about the global economic outlook, geopolitical tensions and a shift in expectations of an early Fed rate cut have fuelled increased demand for investment in the precious metal, pushing prices into an upward spiral, said ActivTrades analyst Ricardo Evangelista. Among these factors, US interest rates are the main risk factor for gold prices, after uncertainty over the Fed’s plans to ease restrictive monetary policy had constrained potential upside.
Ole Hansen, commodities strategist at Saxo Bank, noted that last Friday’s weak U.S. manufacturing data signalled a rising risk of a stock market pullback, which may have persuaded some investors to pull their money out of equities and invest in gold instead.
Analysts note that while gold exchange-traded funds (ETFs) still show outflows, these outflows are partially offset by continued demand for the precious metal from central banks, and it was central bank demand for the metal that helped keep prices high even as real interest rates spiked last year. In 2024 Lunar New Year’s Holiday, when Chinese consumers sought to hedge against turmoil in the country’s stock market and real estate sector, gold and silver prices also found support.
This, coupled with rising geopolitical risks in the first two months of the year, with the attack on the Red Sea shipping ship suggesting that tensions in the Middle East are still escalating, underscored gold’s role as a safe-haven asset. China’s economic woes and the US presidential election at the end of the year make gold a necessary option in investment portfolios.
Thu Lan Nguyen, an analyst at Commerzbank, added that gold continues its upward trajectory. However, the current uptrend is still fragile as there is still a lot of uncertainty about the timing and magnitude of the next US interest rate cut cycle. It would be expected if there is a small downward correction in the coming days on the back of profit-taking.
