Gold has hit a new record high, surging past $3,600 an ounce, as expectations of an imminent interest rate cut by the US Federal Reserve drive investor demand for the precious metal. The move comes amid a weakening US dollar and signs of a softening American economy, making gold a more attractive investment.
The price of spot gold reached a new peak of $3,622.50 per ounce on Monday, continuing a strong rally that has seen it climb by over 37% this year. This latest surge follows the release of weak US labour market data on Friday, which showed a sharp slowdown in job growth and an increase in the unemployment rate to a near four-year high of 4.3%.
Investors are now betting heavily that the Federal Reserve will respond to the signs of a slowing economy by cutting its key interest rate at its next meeting. Lower interest rates reduce the “opportunity cost” of holding gold, which doesn’t provide a yield or dividend. A cut also tends to weaken the US dollar, making gold, which is priced in dollars, cheaper for buyers using other currencies.
Analysts believe the weak jobs report has “sealed the case” for a rate cut, with markets now pricing in a near 100% probability of a 25 basis point cut. Some traders are even assigning a small chance of a larger, 50 basis point cut.
A Global Rush for Gold
The relentless rise in gold prices isn’t just a reaction to US economic signals. The rally is being supported by a number of broader factors, including geopolitical uncertainty and continued, aggressive buying by global central banks. The People’s Bank of China, for example, has increased its gold reserves for the tenth consecutive month, as nations seek to diversify their holdings away from the US dollar.
This shift has been significant. In a landmark development, gold has now overtaken the euro to become the second most important reserve asset held by central banks, behind only the US dollar. For the first time in nearly three decades, central bank gold holdings now make up a larger portion of reserves than US Treasury securities. This trend reflects growing concerns over inflation and broader economic instability.
While the latest surge is directly linked to the Federal Reserve’s potential actions, the long-term momentum is being fuelled by this global appetite for a tangible “safe haven” asset.
The market’s attention will now turn to the upcoming US inflation report later this week, which could provide further clues on the Fed’s monetary policy path. If inflation data comes in softer than expected, it could strengthen the case for more rate cuts and potentially push gold prices even higher. However, a hotter-than-expected report could complicate the outlook, possibly capping some of gold’s recent gains.
For now, the consensus among analysts is that the bullish sentiment will remain, with some forecasting that gold could reach as high as $3,700 an ounce in the coming weeks.
