Gold futures surged to an unprecedented high on Monday as market participants wagered on the Federal Reserve’s inclination to commence interest rate cuts in the latter half of the year.
The April gold contract soared by $30.60, or 1.46%, settling at $2,126.30 per ounce, marking a historic pinnacle dating back to the inception of the contract in 1974.
This milestone represents the second consecutive trading session in which gold has achieved a record settlement, following Friday’s all-time high close of $2,095.70 for the April contract.
Additionally, the VanEck Gold Miners ETF (GDX) experienced a notable uptick, closing up by 4.3% for the third consecutive day. It also surpassed the 50-day moving average of $28.295 for the first time since January 12.
In inflation-adjusted terms, gold reached its zenith of approximately $3,200 in 1980, according to Peter Boockvar, Chief Investment Officer at Bleakley Financial Group. Boockvar anticipates that gold may continue its ascent and potentially challenge the inflation-adjusted record.
Despite prevailing high interest rates and a robust dollar, gold has demonstrated resilience, buoyed by significant gold acquisitions by central banks worldwide following the U.S. and European Union’s seizure of $300 billion of Russia’s foreign exchange reserves in response to Moscow’s incursion into Ukraine. Boockvar highlighted the strategic diversification motives of countries like China and Saudi Arabia, questioning the wisdom of heavily relying on U.S. Treasurys.
Anticipation of interest rate cuts by the Federal Reserve later this year amid easing inflation lends further momentum to gold’s upward trajectory. Historically, gold prices tend to climb when interest rates decrease, as investors seek refuge in safe-haven assets like gold amid less attractive yields from assets such as bonds.
Bart Melek, Global Head of Commodity Strategy at TD Securities, underscored gold’s ascent following underwhelming economic data, particularly in the manufacturing sector, last week. Melek suggested that the moderation of inflation over time, coupled with a weakening economy, may prompt the Federal Reserve to adopt a more dovish stance on interest rates.
Market sentiment, as reflected in the CME Fed Watch Tool, indicates traders’ expectations of a rate cut by the Fed in June.
However, the trajectory of gold prices could encounter obstacles if forthcoming economic data, particularly regarding employment, exceeds expectations.
Year-to-date, gold has advanced by 2.63%, indicating a bullish trend for the precious metal.
