The price of gold reached a new record high on Tuesday, with futures climbing 1.5% to $2,465.30. This sharp increase was fueled by growing expectations of an interest rate cut in September, leading to heightened demand for bullion. Spot gold also hit an all-time high of $2,465.19 during the session, indicating a significant surge in the precious metal’s value. The prospect of lower interest rates, coupled with softer inflation data and dovish comments from Federal Reserve Chair Jerome Powell, has contributed to the spike in gold prices. In fact, markets are now pricing in a 100% chance of a rate cut in September.
The weakening of the U.S. dollar has further supported the demand for gold, as investors turn to the safe-haven asset amid heightened uncertainty. Despite a brief rebound of the greenback after a five-week low, interest in gold remains strong among investors. This sentiment is driven by positive market outlooks towards gold, as evidenced by the quick rally following soft U.S. data prints and dovish Fed expectations. According to UBS’ strategist Joni Teves, positioning in the gold market remains lean, leaving room for investors to increase their exposure to the precious metal.
Central banks around the world have shown heightened interest in gold, resulting in a spike in demand that has not been seen since the late 1960s. With mounting global geopolitical risks and uncertainties, many central banks are opting to diversify their reserves by adding more gold. This shift in preference is driven by concerns over the safety of holding USD- and EUR-denominated assets, especially in light of recent financial crises and geopolitical tensions like the war in Ukraine. This trend has significantly contributed to the surge in gold prices in the first half of 2024.
Alongside the surge in gold prices, gold mining stocks have also experienced significant gains. The VanEck Gold Miners ETF saw a 3% increase, marking its fifth winning day in six sessions. U.S.-listed shares of Harmony Gold and Gold Fields surged by 16% and 6% respectively, reflecting the positive outlook for gold mining companies in the current market environment. As the demand for gold continues to rise, mining stocks are expected to benefit from the record-high prices of the precious metal.
The surge in gold prices in 2024 can be attributed to a combination of factors, including expectations of an interest rate cut, weakening dollar, central bank interest, and geopolitical risks. These dynamics have led to a significant increase in demand for gold, driving its value to new record highs. As investors continue to seek safe-haven assets amidst uncertainties, the outlook for gold remains positive, with both bullion and gold mining stocks expected to benefit from the current market conditions.
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