Gold prices hit a new high as hopes of a U.S. interest rate cut by the Federal Reserve grew, prompting investors to buy more of the precious metal.
Spot gold rose to a record high of $2,528.53 an ounce on Tuesday, up about 1% on the day.
Gold bars typically weigh 400 Trojan ounces (12.4 kg), so a standard gold bar is now worth over $1 million.
Analysts have attributed much of the rally to the prospect of interest rate cuts by central banks, led by the US Federal Reserve. Lower interest rates tend to reduce the appeal of bonds and stocks because they reduce potential returns. This has prompted many investors to place their bets on higher gold prices.
The practical uses of gold are limited to jewelry and some electronic devices, and it offers nothing in the way of returns except the possibility of future price increases.
But investors view the dollar as a safe haven in times of economic and geopolitical turmoil. The reaction to the wars in Ukraine and Gaza appears to have been a factor behind its surge over the past two years, even as U.S. interest rates have risen from historic lows to 23-year highs.
Gold prices have risen by about two-thirds since the end of 2019. However, most of those gains have come since the beginning of March of this year. Prices have risen by more than a fifth since then, helped by growing expectations of interest rate cuts.
The recent surge in gold prices reflects “rising uncertainty and investors fleeing to safe havens” as well as the possibility of a rate cut by the Federal Reserve, said Antonio Ernesto Di Giacomo, chief market analyst at XS, a trading platform.
“Gold’s historic high above $2,500 an ounce reflects growing global economic uncertainty and investors’ continued search for safety,” he said. “With economic, geopolitical and monetary factors driving the rally, gold is reinforcing its status as a safe haven in times of volatility.”
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Investment bank UBS said prices could reach $2,600 an ounce by the end of 2024.
Markets are expecting the Fed to cut its target interest rate by 0.25 percentage points to between 5% and 5.25%. Investors will be listening closely to Fed Chairman Jerome Powell’s speech on Friday at his Jackson Hole, Wyoming, retreat for signs that rate-setters are happy to cut rates at their next meeting on Sept. 18.
Other major central banks have already started cutting interest rates, with the European Central Bank cutting rates in June and the Bank of England following suit earlier this month. Threadneedle Street’s cut to 5% has already led to lower mortgage rates for some borrowers, with seven of the UK’s top ten lenders now offering fixed rates below 4%.