An employee handles one kilogram of gold bars at the YLG Bullion International Co. headquarters in Bangkok, Thailand, Friday, December 22, 2023.
Charlene Tirasupa | Bloomberg | Getty Images
Gold prices extended their record-breaking gains on Monday, hitting another all-time high on the back of strong U.S. economic data and rising geopolitical tensions.
spot gold price Gold prices were up 0.3% at $2,336 an ounce at around 11:00 a.m. London time, after briefly touching a new record of $2,353 earlier in the session. The yellow metal has hit record highs several times in recent weeks.
To some on Wall Street, gold’s strength is expected to last at least into the second half of the year. Citi previously described the asset as a “recession hedge” in developed markets, while others said volatility from the ongoing wars in Ukraine and Gaza could provide further support.
But not everyone is convinced gold prices will continue to rise.
“I think there are two factors,” Bob Parker, senior adviser at trade body International Capital Markets Association, told CNBC’s “Squawk Box Europe” on Monday.
“The first factor is what I call the catch-up effect, and if you look closely at gold relative to global equities last year and early this year, gold has significantly underperformed.”
“So there’s a catch-up effect. Investors are looking at gold’s underperformance and therefore increasing their exposure to gold. Related to this is actually gold’s correlation with Bitcoin – one can argue as to whether that makes sense – But the reality is there is a correlation between Bitcoin and gold,” Parker said.
“Another factor that’s hard to get data for is that I do think there’s been some central bank buying, particularly in Asia, that has increased asset allocation into gold reserves.”
What may be more exciting now is the reaction we are seeing in other precious metals, especially silver, which is finally starting to catch up.
Sidney
Information Officer, BNP Paribas Wealth Management
Gold, often considered a “safe haven” asset in times of financial uncertainty, has risen despite high interest rates and a relatively strong dollar.
Looking ahead, Parker said gold’s fundamentals appear to paint a bearish picture, citing a stronger U.S. dollar, rising bond yields, spreading doubts about the Federal Reserve’s plans to cut interest rates and “reasonably” low inflation.
“Quite frankly, all of these factors actually point to very little upside for gold, and I think gold is very vulnerable to a setback right now,” Parker said.
Market participants have been closely watching comments from Federal Reserve officials on the number of possible rate cuts this year.
As expected, the Federal Reserve kept interest rates unchanged for the fifth consecutive meeting last month, keeping its benchmark overnight borrowing rate at 5.25%-5.5%. The Federal Reserve also stated that it still expects to cut interest rates by 3 percentage points by the end of 2024.
Since then, Fed officials have raised the possibility that the Fed will implement zero interest rates if inflation remains high, and job creation in March easily exceeded expectations, which may delay the Fed’s expected rate cuts this year.
Can silver surpass gold?
Edmund Shing, chief investment officer of BNP Paribas Wealth Management, told CNBC’s “European Street Signs”: “We have been very bullish on precious metals for some time, which is obviously good, but even if we are Gold’s strength is also a bit confusing.” “Monday.
“The interesting thing about gold, and what I think is very encouraging in the medium term, is that gold’s momentum has completely moved away from its traditional correlation with real rates and the dollar.”
Sheng said gold appeared to be getting some boost as investors “looked further ahead” on issues such as debt sustainability. Like Parker, Sheng also emphasized the role of central bank demand in boosting gold prices.
On July 20, 2016, Swiss manufacturer Argor Heraeus SA produced a 1kg silver bar, a 250g silver bar and a 500g silver bar in Budapest, Hungary.
Akos Stiller | Bloomberg | Getty Images
“Let’s not forget that central banks around the world, certainly especially in China, India and emerging markets, have been accumulating gold quite steadily,” Sheng said.
“What’s probably more exciting now is the reaction we’re seeing in other precious metals, especially silver, which is finally starting to catch up. But it’s still far from its all-time high of $50 an ounce. Back in 2011,” he added.
Gold and silver prices have traditionally shown strong positive correlationalthough silver is sometimes described as “poorer cousin“Golden.
Analysts previously told CNBC that silver appears expected to overtake gold in the second half of this year.
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