Gold prices saw a significant surge on Tuesday, reaching a record high of $2,465.30. This surge was driven by the increasing expectations of a September interest rate cut, which bolstered demand for the precious metal. The futures for gold jumped 1.5%, surpassing the previous high of $2,454.20. Likewise, spot gold hit an all-time high of $2,465.19 during the session, according to historical data that has not been adjusted for inflation.
In addition to the anticipation of an interest rate cut, a weakened U.S. dollar also contributed to the rise in demand for bullion. The U.S. greenback rebounded after falling to a five-week low, further supporting the upward trend in gold prices. The sentiment towards gold remains strong among investors, with many looking to ‘buy-the-dip’ due to the dovish Fed expectations and recent soft U.S. data prints.
Gold prices had previously hit all-time highs earlier this year but pulled back due to the prospect of higher interest rates. However, renewed interest in the precious metal has emerged following June’s softer inflation data and dovish comments from Federal Reserve Chair Jerome Powell. Central banks around the world have been increasing their purchases of gold, with UBS reporting that such buying is at its highest level since the late 1960s. This spike in demand is driven by mounting global geopolitical risks, leading to a greater interest in the safe haven asset.
UBS strategist Joni Teves commented that the market is currently sitting just above the psychological $2400 level, indicating potential upside risks for gold prices. With positioning relatively lean, there is room for investors to build their exposure to gold. The likelihood of a rate cut in September is now priced in at 100%, according to futures trading data tracked by the CME FedWatch tool.
The recent surge in gold prices to record highs is a result of a combination of factors including expectations of interest rate cuts, a weakened U.S. dollar, increased central bank buying, and mounting global geopolitical risks. Investors are closely monitoring the market dynamics and positioning themselves accordingly to capitalize on the ongoing bullish trend in the gold market.