Gold futures reached an unprecedented milestone on Monday, settling at an all-time high, driven by trader speculation that the Federal Reserve is poised to implement interest rate cuts in the latter half of the year.
The April gold contract surged by $30.60, a significant 1.46%, concluding the day at $2,126.30 per ounce. This achievement marks the highest level since the contract’s inception in 1974, securing its position as the second consecutive record-setting trading session. Last Friday, the April contract closed at an all-time high of $2,095.70.
Reflecting the bullish sentiment in the market, the VanEck Gold Miners ETF (GDX) exhibited a 4.3% gain, marking its third consecutive day of positive performance. Additionally, it is now trading above the 50-day moving average of $28.295, a significant development since January 12.
Taking inflation into account, gold set its previous record at approximately $3,200 in 1980, notes Peter Boockvar, Chief Investment Officer at Bleakley Financial Group. Boockvar anticipates further upside for gold, emphasizing its potential to test the inflation-adjusted record.
Despite the challenges posed by high interest rates and a robust dollar, gold’s resilience is attributed to substantial gold purchases by central banks worldwide. The recent confiscation of $300 billion of Russia’s foreign exchange reserves by the U.S. and European Union, following Moscow’s invasion of Ukraine, prompted a shift in mentality among major nations regarding the concentration of assets in U.S. Treasuries.
Boockvar envisions a positive outlook for gold, driven by the expectation that the Fed will initiate interest rate cuts later this year as inflation subsides. Historically, falling interest rates often result in rising gold prices as investors seek safe-haven assets amid less attractive yields from bonds.
Bart Melek, Global Head of Commodity Strategy at TD Securities, underscores the role of economic data in influencing gold prices. Weaker-than-expected economic data, especially in the manufacturing sector, has fueled expectations of inflation moderation, providing the Fed with leeway to consider rate cuts. Traders are currently betting on a potential rate cut in June, according to the CME Fed Watch Tool.
However, Melek emphasizes potential headwinds for gold prices if upcoming economic data, particularly on employment, proves stronger than anticipated. Despite potential challenges, gold has demonstrated resilience, marking a 2.63% increase year-to-date.
