Gold surges amid interest rate speculation and global demand
Gold has reached its highest price since mid-May, and according to experts, the price of the precious metal can still rise. The "short-term" reasons include a possible interest rate cut in the United States. In the long term, gold remains desirable for central banks and economic powers such as China.
16 July 2024 14:37
The price of gold continues to rise, reaching $2,432 CAD per ounce on Tuesday, which is the highest level since mid-May. Market experts predict that favourable economic conditions and expectations regarding interest rate cuts could push the price of the precious metal to new record levels shortly.
Gold is getting more expensive. In the background, the Fed meeting
Carsten Fritsch from Commerzbank, quoted by Kitco News, expresses optimism about the possibility of gold reaching a new record level in the coming week. He notes that the expected rate cut in September is almost fully priced in, and another cut may occur by the end of the year. Fritsch predicts that "the price of gold may return to its record level from May in the coming days."
Analysts also point to the upcoming meeting of the European Central Bank, which will take place on Thursday. Although markets expect the current interest rates to be maintained after the June cut, there is speculation about whether the ECB will signal the possibility of another cut in September.
A potential "dovish" stance by the ECB could weaken the euro against the US dollar, which would pose some challenges for gold. However, experts emphasize that the overall trend of falling global interest rates generally favours gold.
Factors supporting gold price increases
Analysts point to several key factors supporting the current upward trend in gold prices. Among them are softer comments from Federal Reserve Chairman Jerome Powell and lower-than-expected inflation data in the Consumer Price Index (CPI). During his testimony on Capitol Hill, Powell emphasized that the economy faces balanced risks, noting that "high inflation is not the only risk we face."
In a slightly broader context, Ole Hansen, Head of Commodity Strategy at Saxo, spoke in June about the outlook for gold prices. According to him, strong retail demand in China is driven by the desire to invest money in a sector perceived as relatively resistant to economic problems and the real estate market crisis.
Continued demand for gold
The expert also pointed to continued demand from central banks in the face of geopolitical uncertainty and de-dollarization and gold's ability to offer security and stability that other assets may not provide. The growing debt-to-GDP ratios in many countries, especially the United States, raise concerns about debt stability, favouring gold's popularity.
In other words, the rising yield on US Treasury bonds does not necessarily harm gold, as it may raise doubts about the overall level of debt and its sustainability. Additionally, attention is shifting from the negative impact of lower expectations for interest rate cuts to support from persistent inflation.
Much will also depend on the stance of China, which has stimulated the gold market since 2022 but temporarily halted purchases due to high price levels.