400-Ounce Gold Bars Cross $1 Million Mark for First Time

Gold bullion bars are pictured after being inspected and polished at the ABC Refinery in Sydney on Aug. 5, 2020. David Gray/AFP via Getty Images

A bar of gold can now cost $1 million or more as prices have surged in recent days amid investor expectations that the Federal Reserve could cut interest rates.

Spot gold prices breached $2,500 per troy ounce on Aug. 16, and gold was trading above that level as of 8 a.m. EDT on Aug. 19. With prices exceeding the $2,500 level, the cost of a 400 oz. London Good Delivery gold bar went beyond $1 million for the first time ever. London Delivery gold bars are investment-grade gold approved by the London Bullion Market Association, a key center for the global trade of precious metals.

Gold prices have been on an uptrend since the beginning of the year, rising by more than 20 percent. The surge comes amid investor expectations that the Fed would lower interest rates.

Interest rates and gold prices tend to have an inverse relationship. When interest rates decline or are expected to go down, gold prices are likely to move up. This is because lower interest rates make assets such as government bonds less attractive to investors.

Many interest rate traders are expecting the Fed to cut rates by 25 basis points (bps) during its upcoming meeting in September.

With high expectations of a rate cut, the Fed “may be bullied by markets into a 50 bps September cut (similar to what happened in the fourth quarter of 2018 when stock market volatility forced the central bank into a policy U-turn that was not warranted by economic conditions),” economist Mohamed A. El-Erian said in an Aug. 5 post on social media platform X, formerly known as Twitter.

There is the possibility of a Fed rate cut being unable to meet investor expectations, which could have a negative effect on gold prices.

“We will not be surprised to see some consolidation/pull-back in the gold market as traders may be disappointed if the Fed only indicates a likelihood of a 0.25 bp rate cut and does not hint at the possibility of a larger 0.50 bp cut,” said David Meger, director of alternative investments and trading at High Ridge Futures.

Gold Price Trend

According to a World Gold Council (WGC) report, August has been a positive month for gold over the past years. The Jackson Hole Economic Policy Symposium scheduled to take place this week could have a powerful influence on gold prices, it stated.

Several central bankers, policymakers, academics, and economists from around the world are expected to take part in the event.

“If speeches at Jackson Hole hint that expectations are too dovish, equities, bonds, and gold are at risk of a downward lurch,” the WGC stated.

Another factor influencing gold prices is the upcoming U.S. elections. The council stated that “gold is likely to benefit from uncertainty more than any political proclivity, and the running mate ... confirmation for Harris is likely to further stir the pot.”

After the election, the level of U.S. national debt and deficit are expected to be a key consideration of investors, with these factors keeping interest in gold high, according to the WGC.

JP Morgan points to the safe-haven status of gold acting as a support for prices.

“Amid fraying geopolitics, increased sanctioning and de-dollarization, we observe an increased appetite to buy real assets, including gold,” Gregory Shearer, head of base and precious metals strategy at J.P. Morgan, said in a July 15 report.

In addition to interest rates and geopolitical concerns, gold prices also get support from the fact that many physical holders of the metal are now reluctant to sell their gold, according to the report.

“A general aversion to short bullion financially, despite the outsized rally, underscores gold’s structurally bullish drivers outside of U.S. real yields,” it reads.

UBS analyst Giovanni Staunovo said gold could rise further in the coming months, likely reaching $2,600 per ounce by year-end, noting that all eyes will be on any indication of an imminent rate cut from Fed Chair Jerome Powell.

Reuters contributed to this report.