Gold prices have been able to achieve record gains approaching $300 per ounce since the beginning of the current year 2024, as the price of an ounce of gold jumped from $2,062.59 at the end of December last year to about $2,343 at the end of trading on Friday, according to Refinitiv data.
Spot gold prices ended trading on Friday at $2,343.42 per ounce, down by about 1.26 percent, catching its breath after reaching its highest levels ever at $2,419.79. What are the reasons for the record rises in gold prices?
Investors who expect the Federal Reserve to cut interest rates are the main driver of the rise in gold prices, but the rise is fueled by other factors, including central banks – led by China – that are buying gold to ease dependence on the US dollar.
Central banks’ gold reserves
Central banks view gold as a long-term store of value and a safe haven during times of economic and international turmoil.
The People’s Bank of China bought gold for the 17th consecutive month in March, adding 160,000 ounces, bringing reserves to 72.74 million troy ounces of gold, according to Reuters.
A recent research note from UBS said that central banks may want to “diversify away” from the US dollar and buy gold amid geopolitical uncertainty and with China building its reserves, demand is pushing prices higher, which are already supported by the usual investors.
Chinese investors are looking to gold as an alternative asset amid the downturn in real estate valuations and stock prices in recent years, according to a research note from Capital Economics.
Other central banks, including India and Turkey, are also increasing their gold reserves, and India’s GDP growth is driving these purchases, according to UBS.
Central banks’ demand for gold is a sign of declining dependence on the dollar, according to Ulf Lindahl, CEO of Currency Research Associates.
Lindahl said the dollar has become increasingly unattractive for central banks that want to reduce economic dependence on the United States.
US interest rates
Gold is considered a flexible investment when interest rates fall. Gold prices tend to rise, as bullion becomes more attractive than income-producing assets such as bonds. Investors also consider gold a hedge against inflation, betting that bullion will retain its value when prices rise.
Rising gold prices indicate that investors expect interest rate cuts by the Federal Reserve later this year, but they may be uncertain about the prospects for reining in inflation without pushing the US economy into recession.
UBS believes that expectations of interest rate cuts from the Federal Reserve “remain the main driver of the rise in gold prices.”
Federal Reserve Chairman Jerome Powell said in his remarks on April 3 that inflation remains on a “sometimes bumpy path” toward the Fed’s 2 percent target, and that interest rate cuts to rebalance the economy are likely to begin at some point. Later this year.
51 percent of investors currently expect a quarter-point cut in June, according to CME Group data. However, March job growth data beat expectations, raising questions about the need for multiple cuts in US interest rates amid an economy that is not… Still strong.
The Personal Consumption Expenditures Price Index, the Fed’s preferred measure of inflation, rose 2.5 percent in the 12 months ending in February, a slight increase from the 2.4 percent increase in January, according to Commerce Department data released. Last month.
Gold prices and geopolitical tensions in the Middle East
Rising tensions in the Middle East have prompted investors to seek refuge in safe haven assets.
The White House said that the imminent attack that Iran intends to launch against Israel represents a real and viable threat, without providing details about the possible timing, reiterating its statements that the United States takes its obligations to defend Israel seriously.
Meanwhile, Goldman Sachs raised its year-end gold price forecast to $2,700 per ounce from $2,300; Oil prices are also rising, posing a threat to the US economy, according to Mark Zandi, chief economist at Moody’s.
Rising oil prices are likely to raise concerns about inflation, boosting gold prices, according to a research note from UBS.
Gold is also a traditional asset that should be held during a state of political uncertainty, and voters in more than 60 countries are scheduled to go to the polls this year, including the US presidential elections, and this rise in geopolitical and economic unpredictability confirms, On the stable value of the precious metal.
2024-04-13 10:43:34
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