- The spot price of gold was $2,255 per ounce by the late morning on Tuesday
- Gold prices and interest rates in the US tends to be inversely correlated
Gold prices surged to a record high on Tuesday amid widespread expectations of impending interest rate cuts.
The spot price of gold was $2,255 per ounce by the late morning, bringing gains to 22 per cent since January.
Analysts have largely credited the increase to forecasts for looming interest rate cuts from central banks like the Federal Reserve and the Bank of England over the coming months.
Climbing: Gold prices surged to a record $2,255 per ounce on Tuesday amid widespread expectations of interest rate cuts
The relationship between gold prices and interest rates in the United States tends to be inversely correlated.
If the latter is relatively low, that usually reduces the attractiveness of bonds and cash investments relative to other asset classes, thereby making gold a more attractive prospect.
A slim majority of economists polled by Reuters in August believe the Fed will cut interest rates by 25 basis points at each of the remaining three meetings this year.
Investors will be looking eagerly at US Fed chairman Jerome Powell’s speech at the upcoming Jackson Hole Symposium on Friday to gauge whether rates will fall in September.
However, gold prices are dependent on a whole host of factors, such as inflation, the US dollar’s movements and demand for gold among consumers and central banks.
The People’s Bank of China has embarked on a considerable gold buying spree since late 2022, acquiring 7.2 million ounces last year alone, according to the World Gold Council.
It halted purchases in May and June due to high prices but has recently given several commercial banks new gold import quotas with the prospect that demand will recover, giving prices a further jolt.
Other central banks in emerging markets like Poland, Turkey, and India have been snapping up gold in large quantities this year.
Anita Wright, financial adviser at Bolton James, notes that BRICS countries with a ‘growing mistrust’ in the US dollar are ‘accelerating their efforts towards de-dollarisation’ by investing in gold.
Prices are receiving a further boost from geopolitical tensions in the Middle East and Russia’s war in Ukraine ‘fuelling a flight to safety,’ said James Eagle, founder at Eeagli.
Gold is often seen as a safe haven during times of crisis because it acts as a hedge against inflation and provides diversification for investors.
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