On Monday 20 May 2024, gold reached an unprecedented high of US$2,450/oz, fuelled by growing confidence in the Fed’s monetary strategy and escalating geopolitical conflicts, leading to another surge in the yellow metal.
During the trading session, the price of gold increased by 1.4% to US$2,450.07/oz, breaking the previous intraday record set in April. By 11:30am EDT, it had fallen back to US$2,424.38/oz, still up 0.4%. US gold futures experienced a similar increase of 0.5% to US$2,429.60/oz, after reaching US$2,454.20 earlier in the day.
Despite a slight pullback due to profit-taking, the outlook for gold remains bright, with potential for new records, as noted by Fawad Razaqzada, a market analyst at City Index.
In recent trading sessions, there has been an increase in speculation that the Fed might lower borrowing costs as early as September. This would be beneficial for gold, which does not yield interest.
The weakening dollar has also provided additional support for the precious metal. Recent economic data suggests that the US economic recovery is decelerating, which could lead to lower inflation and lessen the need for a prolonged tight monetary policy, as per Razaqzada.
Wider macroeconomic factors are also influencing precious metals and other commodities like copper. Stimulus measures in China have increased demand or perceived demand for commodities, and data from the eurozone and the UK has shown improvement, according to Razaqzada.
Gold’s status as a safe haven has been highlighted following the news of the helicopter crash that killed Iran’s President Ebrahim Raisi, who was considered a potential successor to the country’s supreme leadership. This incident occurred amidst the ongoing unrest in the Middle East due to the Gaza conflict.
The situation has been further complicated by the attack on a China-bound oil tanker in the Red Sea by a Houthi missile on Saturday, adding to the rising geopolitical risks in the region. Hedge funds trading Comex futures have increased their bullish positions on gold to a three-week high in the week ending May 14, as per data from the Commodity Futures Trading Commission.
These gains indicate that gold has moved out of its recent narrow trading range due to uncertainty over the US interest rate trajectory. Prices have risen about 17% this year.
The strength of the metal has been attributed to purchases by central banks, strong demand from Asia, particularly China, and heightened geopolitical tensions in Ukraine and the Middle East. The recent surge has also impacted other metals, including silver, which reached its highest level since December 2012.
