Gold Prices Set New Records; Behind the Latest Surge

Gold on display at the opening ceremony following the Chinese New Year 2024, on Feb. 14, 2024. (Bill Cox/The Epoch Times)

Gold prices topped $2,500 for the first time, and the yellow metal remains one of the top-performing assets in the global financial markets this year, buoyed by a wide range of factors.

December gold futures, the most active contract, rocketed $53.80, or 2.16 percent, to $2,546.20 per ounce on Aug. 16 on the New York Mercantile Exchange.

The precious metal registered a weekly gain of slightly more than 3 percent, adding to its year-to-date rally of nearly 23 percent. Over the last 12 months, gold prices have spiked close to 33 percent.

Silver, the sister commodity to gold, also firmed above $29 to end the trading session. September silver futures climbed $0.667, or 2.35 percent, to $29.085 an ounce.

What has fueled the metal commodity’s ascent?

Federal Reserve Policy Expectations

According to the CME FedWatch Tool, investors widely expect the Federal Reserve to announce a quarter-point interest rate cut at next month’s policy meeting. Traders are also penciling in one more rate reduction before the year’s end.

The widely anticipated Fed pivot has resulted in sliding U.S. Treasury yields.

The benchmark 10-year yield has been trending downward since the end of April, slipping below 4 percent earlier this month. The 2- and 30-year bond yields have also targeted 4 percent.

Gold is sensitive to fluctuations in interest rates because it influences the opportunity cost of holding non-yielding bullion.

The greenback has also become a victim of the central bank’s expected loosening of monetary conditions.

Over the last month, the U.S. Dollar Index (DXY), a gauge of the buck against a basket of currencies, has tumbled nearly 2 percent to below 103.00. Year-to-date, it is up 1 percent, though the index had been up as much as 4.8 percent.

A weaker greenback is good for dollar-denominated assets, like gold and silver, because it makes it cheaper for foreign investors to purchase.

Before August’s conclusion, the financial markets will pay attention to the minutes from the July policy meeting and Fed Chair Jerome Powell’s Jackson Hole speech.

Federal Reserve Chairman Jerome Powell speaks at a news conference following a Federal Open Market Committee meeting at the William McChesney Martin Jr. Federal Reserve Board Building in Washington on July 31, 2024. (Andrew Harnik/Getty Images)d

“We believe that gold’s focus will remain firmly on the scope and timing of the Fed’s likely move to cut rates,” said Ewa Manthey, a commodities strategist at ING, in a note.

An Eye on Geopolitics

Investors have sought shelter in the yellow metal amid geopolitical strife, particularly the situation in the Middle East and Eastern Europe.

International markets fear that an attack by Iran on Israel is nigh and could trigger a wider conflict. While there have been ongoing talks that could prevent Tehran from retaliating against Israel, negotiations have stalled.

The Ukrainian military launched an offensive into Russia’s Kursk region as both sides continued to engage in a deadly conflict.

Geopolitical uncertainty could further fuel safe-haven demand and support gold prices in the short- to medium-term, notes Manthey.

“Geopolitics will also remain one of the key factors driving gold prices,” she said. “The war in Ukraine and ongoing conflict in the Middle East, alongside tensions between the U.S. and China, suggest that safe-haven demand will continue to support gold prices in the short to medium term.”

Politics and Central Banks

Central bank gold demand has been strong this year, according to fresh data from the World Gold Council.

While demand was lower from April to June compared to previous three-month spans, the 183 tons purchased by central banks in the second quarter were 6 percent higher year over year.

Net buying in the first half of 2024 totaled 483 tons, 5 percent above the previous record of 460 tons in the first half of 2023.

The trend is expected to persist throughout 2024, the industry group stated.

“Based on the first half of the year, and the findings from our survey, we maintain our expectation that central banks will remain significant net purchasers throughout 2024,” the report said. “On current form, central banks appear on course for another sizeable annual total, but it remains to be seen whether this will match or exceed the volumes of the previous two years.”

In June, the World Gold Council’s survey of central banks showed that 81 percent of respondents think global central bank gold holdings will grow in the next 12 months. More than one-quarter (29 percent) think their institution’s gold reserves will increase.

There are many reasons why central banks would be interested in gaining exposure to gold, such as safety, portfolio diversity, long-term store of value, and a paucity of default risk.

Additionally, following Russia’s invasion of Ukraine, the United States and its allies installed tough sanctions on Moscow that isolated the country from the international financial community. As a result, the Bank of Russia and its counterparts have shifted some of their reserve assets away from the dollar and into gold.

Uncertainty surrounding the November presidential election could also influence gold’s direction.

“Given the U.S.’s pivotal role in the global economy, coupled with the prevailing geopolitical uncertainties, the upcoming presidential election is viewed by many as a watershed moment with far-reaching implications,” the World Gold Council said in a July report.

“Elections have not, historically, had a significant or immediate effect on gold’s performance but regardless of the winning candidate, near-term geopolitical risks remain high and may serve as a catalyst for gold.”