Gold prices surged to a record high on Tuesday, with gold futures climbing 1.5% to $2,465.30. This new high surpassed the previous peak of $2,454.20 that was reached back in May. During the trading session, the futures even reached as high as $2,467.30 per ounce. Similarly, spot gold hit an all-time high of $2,465.19, based on historical data going back to 1968 without adjusting for inflation. As of the latest data, spot gold was trading at $2,460.21, marking a 1.6% increase.
The recent surge in gold prices can be attributed to the growing expectations of an interest rate cut in September. Following June’s softer inflation data and dovish comments from Federal Reserve Chair Jerome Powell, the probability of rate cuts has significantly increased. In fact, the markets are now pricing in 100% odds of a rate cut in September, based on futures trading tracked by the CME FedWatch tool. This positive sentiment towards gold has been further fueled by a weakening dollar, which rebounded after hitting a five-week low on Tuesday.
In addition to the interest rate cut expectations, central bank buying of gold has also played a significant role in driving up prices. According to UBS, central banks worldwide have been increasing their gold reserves at the highest rate since the late 1960s. This spike in demand can be attributed to mounting global geopolitical risks, which have led many central banks to question the safety of holding assets denominated in USD and EUR. As a result, gold has emerged as a preferred safe haven asset for central banks looking to diversify their reserves.
UBS strategist Joni Teves expressed optimism regarding the future price movements of gold. Despite the recent record highs, Teves believes that the market still has room for further upside potential, especially with gold trading above the psychological $2400 level. With positioning in the market remaining lean, there is space for investors to increase their exposure to gold. This positive sentiment towards gold is also reflected in the performance of gold mining stocks, with the VanEck Gold Miners ETF recording gains of 3% on Tuesday. Stocks of companies like Harmony Gold and Gold Fields also saw notable increases, with gains of 16% and 6% respectively.
The combination of rising expectations of an interest rate cut, central bank buying, and geopolitical risks has propelled gold prices to new heights. The outlook for gold remains positive, with potential for further gains in the near future. Investors and central banks alike continue to show strong interest in gold, making it a valuable asset in uncertain times.