2024-03-13 01:00:31
For some time, investors have poured into the gold market, driving gold prices soaring. Last Thursday, spot gold broke through $2,164 an ounce, standing on recent highs. Gold prices fell slightly during Asian trading last Friday, but were still hovering around $2,160 an ounce.
Analysts pointed out that investors’ preference for gold is related to multiple factors, including bets on the Federal Reserve’s interest rate cuts, concerns regarding the global economic outlook and geopolitical situations.
Strong rise for 16 months
Gold is often considered a safe-haven asset. As a precious metal, gold does not bring direct income, but it is regarded as a reliable means of preserving value. And it’s a tangible asset, which carries less risk than stocks.
However, given the backdrop of high interest rates, especially with the Federal Reserve’s federal funds rate still at a 22-year high, gold prices remaining at record highs is particularly notable. Generally speaking, when interest rates remain high, other high-yielding assets become more attractive and gold prices fall.
However, gold prices have enjoyed a strong 16-month rise, surging 30% from just over $1,600 an ounce at the end of 2022. Spot gold prices have also risen more than 5% in the past month.
At present, the price of gold continues to rise and is considered to have broken through the “three tops” previously defined by the market. That is, during the 2020 COVID-19 pandemic, the escalation of the Ukrainian crisis in 2022, and the outbreak of the U.S. banking crisis last year, the gold price was close to every level. ounce at $2,070.
Why is gold so sought following?
Based on analysis from all parties, factors such as increased expectations for interest rate cuts, concerns regarding the global economic outlook and geopolitical tensions have driven increased demand for gold, thereby pushing up gold prices.
Investors are betting that central banks around the world may collectively cut interest rates this year, especially raising expectations for a rate cut by the Federal Reserve in June. The rise in expectations for a rate cut comes from investors’ assessment of the economic situation, which suggests growth is likely to slow.
As for the U.S. economy, although it has shown some resilience, the continued high interest rate environment is having side effects.
Recently, U.S. Treasury yields have also been falling, indicating that investors are not optimistic enough regarding the economic outlook and demand for safe havens is rising.
Ruth Mold, director of investment at AJ Bell, a British investment institution, believes that the price of gold has hit a recent high, reflecting investors’ predictions that the Federal Reserve will cut interest rates and U.S. government debt may be high. This makes gold even more attractive to investors.
Analysts also pointed out that global central banks are the main buyers of gold, and their strong buying also supports higher gold prices.
In fact, following the Ukraine crisis escalated and the United States “weaponized” the U.S. dollar to impose sanctions on Russia, the central banks of emerging economies purchased gold at record levels. Demand for gold also remained strong through the end of last year, with central banks continuing to buy gold as a hedge once morest inflation.
Avoiding geopolitical risks is considered another major motivation for investors to dig for gold.
James Steele, precious metals analyst at HSBC, said geopolitical risks were the main driver of gold prices.
Data shows that since the outbreak of the new round of Palestinian-Israeli conflict, gold has risen by more than $300 per ounce.
In addition, speculative factors cannot be ruled out. Recently, a measure of gold price volatility released by the Chicago Mercantile Exchange hit a three-month high, indicating that options traders are preparing for a rise in gold prices.
“There are a lot of inflows and there are only a handful of assets that are moving broadly, and gold is one of them.” Steele said this illustrates that there are new entrants in the market who are taking advantage of uncertainty and viewing gold as “ haven”.
Will it break the $2,300 mark?
Analysts predict that there is room for further gains in gold prices, with the rally continuing at least until the second half of this year, and the price may even exceed the $2,300 mark.
The Federal Reserve’s interest rate policy is considered the most critical factor in determining the direction of gold prices in the coming months.
A few days ago, Federal Reserve Chairman Powell released a positive signal at a congressional hearing, which strengthened the market’s confidence in cutting interest rates.
Nitesh Shah, a commodity analyst at US financial services company Wisdom Tree, said that gold prices may give up some of their gains as the Federal Reserve discusses interest rate cuts, but as long as the rate cut is confirmed, gold prices are expected to rise sharply.
Citigroup has raised its gold price forecasts for the next three months and the next six to 12 months to US$2,200 per ounce and US$2,300 per ounce respectively.
At the same time, global political uncertainty is expected to further stimulate demand for gold.
Nitesh Shah pointed out that on the one hand, the Palestinian-Israeli conflict and the Red Sea crisis continue to create geopolitical risks; on the other hand, this year is a global election year, and many countries will hold elections. These factors will make investor demand for gold extremely strong.
Many analysts believe that in the face of uncertain political and economic environments, gold remains a safe “haven” for banks and investors, and central banks of various countries will continue to purchase gold. These factors will promote continued appreciation of gold.
However, Charles Stanley Chief Investment Officer Patrick Farrell predicts that gold prices may soon peak. At the same time, gold prices may also fall as returns on other investments rise.
In addition, although gold prices have hit new highs recently, they are still far from the historical high of $3,355 per ounce in the 1980s.
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