Gold prices hit new record high ahead of expected rate cuts
- The spot price of gold was $2,255 an ounce late Tuesday morning
- Gold prices and interest rates in the US are typically inversely related
Gold prices rose to a record high on Tuesday as many people expect interest rates to be cut soon.
Spot gold price was $2,255 an ounce at late morning, a gain of 22 percent compared to January.
Analysts attribute the rise largely to predictions of looming interest rate cuts by central banks such as the Federal Reserve and the Bank of England in the coming months.
Rising: Gold prices rose to a record $2,255 an ounce on Tuesday amid widespread expectations of rate cuts
The relationship between the gold price and interest rates in the United States is generally inversely proportional.
When the latter is relatively low, it generally reduces the attractiveness of bonds and cash investments relative to other asset classes, making gold more attractive.
A slight majority of economists polled by Reuters in August believe the Fed will cut rates by 25 basis points at each of its remaining three meetings this year.
Investors are eagerly awaiting US Federal Reserve Chairman Jerome Powell’s speech at the upcoming symposium in Jackson Hole on Friday to determine whether interest rates will fall in September.
However, the gold price depends on a number of factors, such as inflation, the development of the US dollar and the demand for gold among consumers and central banks.
According to the World Gold Council, the People’s Bank of China has embarked on a significant gold buying spree since late 2022, buying 7.2 million ounces of gold last year alone.
In May and June, purchases were halted due to high prices, but recently several commercial banks have given new import quotas for gold in the hope that demand will recover, pushing prices higher still.
Other central banks in emerging markets such as Poland, Turkey and India have bought large amounts of gold this year.
Anita Wright, financial advisor at Bolton James, notes that BRICS countries with a “growing distrust” of the US dollar are “accelerating their efforts towards dedollarisation” by investing in gold.
According to James Eagle, founder of Eeagli, prices are further rising due to geopolitical tensions in the Middle East and Russia’s war in Ukraine, which are “fueling the flight to safety”.
Gold is often seen as a safe haven in times of crisis as it provides protection against inflation and offers investors diversification.
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