Gold prices hit record high in anticipation of Fed rate cut

Gold bars and coins.

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Gold prices extended gains and hit a new high on Monday, driven by expectations of U.S. interest rate cuts and gold’s appeal as a safe-haven asset.

spot gold rose 1.32% to $2,265.53 per ounce. U.S. Gold Futures It rose more than 2% to $2,286.39 an ounce.

“I think it’s a very exciting time for gold,” World Gold Council market strategist Joseph Cavatoni told CNBC on Monday. “I think what’s really driving this is But many market speculators really gained confidence and comfort from the Fed’s rate cut.”

Market observers expect The Fed will cut interest rates May or June rates.

According to data released last Friday, the Federal Reserve’s key inflation indicator increased by 2.8% year-on-year in February, which may make the Federal Reserve remain on hold before starting to consider cutting interest rates.

The Fed kept interest rates on hold at the end of its most recent March meeting, but stuck to its forecast of three rate cuts this year.

Gold price over the past year

Gold prices tend to have an inverse relationship with interest rates. As interest rates fall, gold becomes more attractive compared to fixed-income assets such as bonds, whose returns decline in a low-rate environment.

Overseas demand is also driving gold prices higher, said Caesar Bryan, portfolio manager at investment management firm Gabelli Funds.

“In China, private investors are attracted to gold because the real estate sector is underperforming,” Bryan said, adding that China’s overall economy remains weak and its stock market and currency have underperformed.

The World Gold Council’s Cavatoni said heavy buying of gold by central banks around the world to diversify their reserve portfolios amid geopolitical risks, domestic inflation and a weak dollar had driven gold’s rise so far.

“They have every reason to keep buying… (but) let’s see if they continue at the same size and duration,” he added.

Data from the World Gold Council shows China is the main driver of consumer demand and central bank gold purchases.