Fed’s rate cut sends gold soaring past US$2,200 per ounce

Gold soared beyond US$2,200 per ounce for the first time, following the Federal Reserve’s decision to maintain its forecast of three rate cuts this year. The Federal Reserve seems undeterred by recent inflation increases.

Early trading saw Bullion reach an unprecedented high before retreating slightly. Its meteoric rise since mid-February has been underpinned by enduring support such as escalating geopolitical risks and purchases by central banks, with China leading the pack. The swift climb has left many veteran market analysts astounded due to the absence of an evident catalyst.

The surge has been partially fuelled by the anticipation of a more relaxed monetary policy in the US, a sentiment echoed by the Federal Reserve yesterday. Jerome Powell, the Chair, reiterated that officials would prefer more evidence of price reduction.

“It’s still likely in most people’s view that we will achieve that confidence and there will be rate cuts.”

Chris Weston, head of research for Pepperstone Group Ltd., added that what we saw last night was the green light really for gold traders to come back in.

“The Fed has said that right now they’re tolerant of the inflation that we’ve seen, they’re tolerant that the labour market strength is not going to be the impediment.”

The timing of the Federal Reserve’s long-anticipated pivot provided the impetus for the recent gains. Data shows that traders increased their net long positions on gold last week by the most since 2019. UBS Group AG suggests that the metal may see further benefits when US interest rates eventually drop, with bullion-backed exchange-traded funds likely to augment their holdings.

Geopolitically, numerous risks are enhancing gold’s appeal as a safe-haven asset. Russia’s apparent upper hand in the Ukraine war, the ongoing Israel-Hamas conflict leading to a rerouting of global shipping, and the potentially market-impacting US presidential election at year’s end all contribute to this trend.

Chinese purchase of gold has also bolstered the market. Besides the central bank, ordinary individuals are accumulating coins, gold bars, and jewellery to protect their wealth from a prolonged property slump and stock market losses, reported Bangkok Post.

As of 9.40am in Singapore, spot gold had increased by 0.7% to US$2,201.94 per ounce. Meanwhile, the Bloomberg Dollar Spot Index saw a 0.2% decline. Silver, platinum, and palladium all experienced a rise.