News

Gold Prices Reach New Record High

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Andrew R. Michaud

• March 05, 2024

The price of gold surged to a new record high on Tuesday, driven by several macroeconomic catalysts that are expected to bring more movement for the precious metal and its reputation as a safe haven asset.

Futures Trade and All-Time High

Front-month gold futures in New York climbed 0.4% on Tuesday to $2,125 per troy ounce, marking an all-time high following a close above $2,100 on Monday—a historic milestone for the yellow metal.

Real vs. Nominal Peaks

According to Jim Reid, a strategist at Deutsche Bank, it is important to recognize that, in real terms, gold still falls below its previous peaks in 1980, 2011, and 2020. These higher prior levels for gold, when adjusted for inflation, remain significant as many investors turn to the precious metal as a hedge against inflationary pressures.

Factors Behind the Rally

Several factors have contributed to the recent surge in gold prices, with expectations regarding U.S. interest rates being among the most notable reasons. As we look ahead, there are more catalysts on the horizon that could result in further fluctuations in the price of this sought-after commodity.

Market Analyst Predicts Increased Demand for Gold

According to market analyst Ricardo Evangelista from broker ActivTrades, concerns over global economic prospects, geopolitical tensions, and the possibility of earlier interest rate cuts have led to a surge in demand for gold. Evangelista emphasizes that the primary risk factor influencing gold prices is the U.S. interest rates.

Impact of U.S. Interest Rates on Gold Prices

Gold has shown sensitivity to short-term U.S. interest rate expectations, as lower rates tend to boost the price of gold due to its lack of yield. Traders have been speculating in recent days that the Federal Reserve will lower rates sooner rather than later. The odds of a rate cut by June have increased to 65% on Tuesday, up from around 55% a week ago, as per the CME FedWatch Tool.

Uncertainty around Federal Reserve's Monetary Policy

Evangelista notes that the potential upside for gold is limited by uncertainties surrounding the Federal Reserve's strategy to unwind its restrictive monetary policy. In light of this, traders will be closely monitoring this week's data releases, including U.S. services PMI and labor figures, as well as Jerome Powell's testimony to the U.S. Congress. These events are expected to have a significant impact on gold prices going forward.

Market Dynamics: Impact of Investors' Rate Expectations on S&P 500 and Gold

Any significant change to investors’ rate expectations will not only shift the S&P 500 in the stock market, but is likely to leak over into gold—for better or worse for the goldbugs.