The safe-haven attribute and investment value of gold has once again become the focus of investors’ attention in the face of the complexity of the global economic and geopolitical situation. So far this year, the gold price has soared by nearly 20 per cent, supported by massive purchases by central banks, China’s strong consumer appetite and demand for safe-haven assets amid geopolitical tensions. In a more bullish environment, momentum-focused participants have re-emerged as the main drivers of gold.
JP Morgan expects the Federal Reserve to cut interest rates from September, a prediction that is in line with the Wall Street consensus. Since gold is a non-interest-bearing asset, lower borrowing costs tend to benefit the precious metal.
Gold prices hit another record on Wednesday (17 July local time) before stabilizing as traders increased bets on a Federal Reserve interest rate cut while traders weighed the uncertain political outlook in the US.
Spot gold prices climbed to an all-time high of $2,483.73 per ounce before giving back gains. As of 12:45 p.m. ET, gold had retreated to $2,455.71 an ounce. U.S. gold futures also fell slightly to $2,460.70 an ounce.
This follows a 1.9 per cent rise in gold prices on Tuesday, surpassing the all-time high set in May, as traders have been betting on more aggressive rate cuts from the Federal Reserve amid growing signs that inflation is cooling towards the Fed’s target.
On Wednesday, Federal Reserve Governor Christopher Waller said the economy is getting closer to the point where the Fed can lower borrowing costs, but he would like to see “more evidence” that inflation is continuing to fall.
A growing number of Fed officials have hinted that they are getting closer to a rate cut, but most – including Fed Chairman Jerome Powell – have not provided guidance on the exact timing of the cut.
Chris Weston, head of research at Pepperstone Group Ltd. said in a report on Wednesday, “Fundamentals have clearly shifted, providing investors with more reasons to reload gold holdings in their portfolios, which has led price-sensitive funds to chase the upside. With broad-based positions and sentiment not yet approaching extremes, the gold price could soon face a test to $2,500.”
However, there are signs that the rally is overdone. Gold’s 14-day relative strength index hovers around 70, a level some investors believe is overbought.
