Has the Gold Bull Market Run Out of Steam as $2300 is Swiftly Breached?

What Factors Are Driving the Recent Surge in Gold Prices?
Published on: Apr 3, 2024
Author: Caroline Kong

After gold price reached $2,200 per ounce, many investors and analysts, despite continuing to be bullish on the long-term uptrend of the precious metal, believe that the price of gold will pause and take a breath. However, on the second trading day of April, the price of gold futures after rising six consecutive days broke through the $2,300 per ounce, hit another record high.

Market insiders point out that the rapid rise in the price of gold in the short term is mainly due to the expectation of interest rate cuts and the demand for safe-haven assets.

At the end of February, Federal Reserve Chairman Jerome Powell explicitly stated during a press conference that the policy interest rate had reached its peak, implying the end of the current cycle of rate hikes. Combined with data indicating that inflation in the United States has been somewhat under control, the market believes that the Federal Reserve does not need to maintain such a high level of policy interest rates.

At the same time, the geopolitical tensions have also accelerated the demand for gold as a safe-haven asset. The ongoing conflicts in the Middle East, particularly Israel’s airstrikes on the Iranian embassy in Syria, have heightened market concerns. Iran has vowed to retaliate against Israel for the attack on the Iranian embassy in Damascus, further exacerbating geopolitical uncertainties.

Furthermore, global central banks have been actively increasing their gold reserves, reducing the available supply. Hedge funds have also been actively holding long positions in gold futures, further driving the upward momentum.

Independent analyst Ross Norman noted that today’s rise in gold is unusual, as it occurred in the face of resistance factors such as a strengthening US dollar and rising bond yields. The uptick in the US dollar came after data on Monday (April 1st) showed the first growth in US manufacturing in a year and a half, and the market’s expectations for a rate cut in June decreased from around 60% to 58%.

Daniel Ghali, a commodity strategist at TD Securities, stated that the rise in oil prices has also boosted investment demand for gold, as higher energy costs will translate into future inflationary pressure, while gold is an ideal hedge against inflation.

Other precious metals followed gold’s lead today, with silver up 3.2 per cent to $25.89 an ounce, platinum up 2.4 per cent to $923.00, and palladium up 0.1 per cent to $996.88.

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