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Gold prices have surged to an all-time high, boosted by a fall in the US dollar as traders ratchet up their bets that the Federal Reserve will cut interest rates next year.
The haven asset rallied as much as 2 per cent to $2,111 per troy ounce on Monday, a fresh all-time high, before slipping to $2,064 per troy ounce, according to Refinitiv data.
Bullion’s latest ascent has been driven by a 3.2 per cent fall for the dollar against a basket of six other currencies since the start of November — slightly above its lowest level in four months — as investor confidence has grown that the Fed will lower borrowing costs early next year.
The shift higher for gold adds to a powerful rally in motion since November last year driven by rampant central bank purchasing and geopolitical tensions because of the conflicts in Ukraine and Israel and Gaza. That demand helped the metal to rise despite a rise in real interest rates over most of the past year — something which typically dulls appetite for non-yielding gold.
Gold reached its previous record high of $2,072.49 per troy ounce in August 2020 when the coronavirus pandemic was hitting the US economy harder than other parts of the world, leading investors to snap up bullion.
Bullion also momentarily broke that level on Friday, reaching a high of $2,075.09 a troy ounce.
Ross Norman, chief executive of Metals Daily, said the latest rise was likely to be largely speculative flows from futures traders during a time of thin market conditions.
“Traders are swimming with the tide — you have a falling dollar here, a strong seasonal period when bulls can take on the market without compunction, and geopolitical tensions,” he said.
The recent fall in bond yields, as investors bet that interest rates have peaked and will soon start to fall, has added extra impetus to gold’s ascent. Fed chair Jay Powell warned on Friday that the central bank could increase rates further but added that policy was already in “restrictive territory”.
Analysts warned that gold may struggle to hold on to gains and trade consistently above the $2,075 per troy ounce mark unless more sustained buying comes through from a broader range of market participants.
“Gold seems to have run ahead of itself somewhat,” said Marcus Garvey, head of commodities strategy at Macquarie, who sees $2,250 per troy ounce as a realistic price if inflation continues to ease in the US.
“The key to making a more sustainable break higher is likely to include the return of ETF buying, which is still largely absent,” he said.
