- The gold price has been in a huge rally since the beginning of last month
- Hopes of interest rate cuts by the US Federal Reserve have also caused prices to rise
The price of gold rose to a record high on Monday after the Chinese central bank continued to buy the precious metal for its reserves.
An ounce of gold reached $2,355 in Asian trading as the People’s Bank of China boosted its gold reserves to 72.74 million fine troy ounces in March, the 17th consecutive month of purchases, according to official statistics.
Gold has staged a massive rally since the start of last month, driven by several central banks’ purchases, with 64 net tonnes bought in January and February alone, World Gold Council data show.
Price Rise: Gold has staged a massive rally since the start of last month following purchases by several central banks, with 64 net tons bought in January and February
Interest rates have also risen in recent weeks on looming hopes of rate cuts by the US Federal Reserve.
The Fed raised rates 11 times in a row between March 2022 and July 2023 in response to rising inflation, before holding them steady at 5.25 to 5.5 percent.
As a result, US inflation has fallen from double-digit levels to 3.2 percent in February, raising the likelihood that the central bank will cut interest rates in the coming months.
Gold prices have historically often been inversely correlated with interest rates, because lowering interest rates makes them more attractive relative to fixed-income assets such as bonds.
Analysts at UBS Global Wealth Management predict that investments in gold exchange-traded funds will rise once the Fed starts cutting rates “as these buyers tend to be more in sync with interest rate adjustments.”
As a result, UBS GWM now predicts that the value of gold will rise to $2,500/oz by the end of 2024, an upgrade from previous forecasts of $2,250/oz.
“Renewed near-term price declines remain possible if U.S. economic data slows Fed rate cuts, but so far these headwinds have been more superficial than we expected,” the report said.
Gold prices are not a function of interest rates and, like other goods and services, are determined by the dynamics of supply and demand.
The World Gold Council said annual gold demand, including over-the-counter orders, increased 3 percent to a record 4,899 tons in 2023.
Much of this growth was driven by households and investors in China, who increasingly bought precious metals due to heavy pressure within the country’s stock market and real estate sectors.
Prices have risen further due to geopolitical tensions resulting from the conflicts in Ukraine and the Middle East.
Gold is often seen as a safe haven in times of crisis, especially recessions, because it acts as a hedge against inflation and provides diversification for investors.