Gold surges beyond the $2,100 mark, reaching an all-time high, fueled by traders' speculation on forthcoming interest rate cuts.
On Monday, gold futures reached their highest-ever level as traders speculated that the Federal Reserve would commence interest rate cuts in the latter half of the year. The April gold contract surged by $30.60, or 1.46%, settling at $2,126.30 per ounce, marking a record high dating back to the contract's inception in 1974.
This achievement marked the second consecutive record-setting trading session, with the April contract concluding at an all-time peak of $2,095.70 on the preceding Friday. The VanEck Gold Miners ETF (GDX) experienced a 4.3% increase, securing its third consecutive day of gains and surpassing the 50-day moving average of $28.295 for the first time since January 12.
Taking inflation into account, gold reached an unprecedented high of approximately $3,200 in 1980, as highlighted by Peter Boockvar, Chief Investment Officer at Bleakley Financial Group. Boockvar anticipates a potential upside for gold, suggesting it may test the inflation-adjusted record.
Despite prevailing high interest rates and a robust dollar, gold has exhibited resilience, attributed in part to significant gold acquisitions by central banks worldwide following the confiscation of $300 billion of Russia's foreign exchange reserves by the U.S. and European Union in response to Moscow's invasion of Ukraine. Boockvar noted the strategic reconsideration by countries like China and Saudi Arabia, contemplating diversification from heavy reliance on U.S. Treasuries.
Boockvar envisions an optimistic outlook for gold, driven by expectations of the Fed initiating interest rate cuts later this year amid decreasing inflation. Historically, when interest rates decline, gold prices tend to rise as investors seek a safe haven due to diminished attractiveness of assets like bonds offering less lucrative yields.
Bart Melek, Global Head of Commodity Strategy at TD Securities, attributes gold's recent surge to weaker-than-expected economic data, particularly in the manufacturing sector. He anticipates that moderating inflation, coupled with a weakening economy, will empower the Fed to seriously consider rate cuts. Traders are placing their bets on a June rate cut, according to the CME Fed Watch Tool.
Melek, however, cautions that strong economic data, especially in employment figures, could pose challenges for gold prices. He emphasizes the significance of payroll data, suggesting that if it exceeds expectations, the gains in gold could be relinquished. Year to date, gold has seen a rise of 2.63%.