Unlock the Editor’s Digest for free
Roula Khalaf, Editor of the FT, selects her favourite stories in this weekly newsletter.
The price of gold has surged to a record high, driven by growing expectations of US interest rate cuts, investors hunting for haven assets and months of prodigious buying by central banks and Chinese investors.
The yellow metal struck $2,141 per troy ounce on Tuesday, beating the previous record of $2,135 set in December, according to LSEG data, before soon paring gains to trade up 0.8 per cent at $2,131 on the day.
Tuesday’s move represents a continuation of a rally triggered on Friday by growing hopes of a Federal Reserve rate cut in June following weaker economic data. Gold, an asset with no yield, benefits from lower borrowing costs as investors feel less opportunity cost by not putting their cash into bonds.
Gold has been on a searing 16-month rally, surging 30 per cent from just above $1,600 per troy ounce in late 2022, supported primarily by record buying by central bank emerging markets after the US weaponised the dollar in its sanctions against Russia for its full invasion of Ukraine.
In recent months, the precious metal has gained a second wind from what analysts describe as “phenomenal” purchases by Chinese consumers seeking a safe place to park their cash after local property and stock markets tumbled.
“It’s a stealth rally,” said Ross Norman, chief executive of Metals Daily, an industry publication. “The western investor is not behind it. Gold continues to flow to the east.”
Analysts say that gold’s record high is all the more striking given the surge in interest rates in recent years, with the Fed’s benchmark rate still at a 22-year high of between 5.25 per cent and 5.5 per cent, dimming the allure of gold.
But despite hitting a nominal all-time high, gold is still some way off its inflation-adjusted all-time high of $3,355 per troy ounce reached in 1980 when oil-driven inflation and turmoil in the Middle East capped a nine-year bull run.
On Friday, the ISM Manufacturing Purchasing Managers’ index indicated a far larger than expected contraction in US manufacturing activity in January.
That catapulted gold beyond what the market dubbed its previous “triple tops” around the $2,070 mark, when the coronavirus pandemic battered the US in 2020, Russia invaded Ukraine in 2022 and the US banking crisis erupted last year.
The early signs of pain in the US economy from high rates raised expectations that the Fed could cut rates in June, which was also reflected in government bond yields moving lower in the past week.
Two-year Treasury yields have fallen by 0.23 percentage points since the start of last week to 4.56 per cent. Traders now place an 85 per cent probability on the Fed delivering its first 0.25 percentage point cut by June, up from 70 per cent early last week.
But James Steel, precious metals analyst at HSBC, said that changing expectations of rate cuts, which have been back and forth since the start of the year, were not the main driver of gold’s latest move.
“There are new entrants in the market who are operating off of uncertainty and looking for gold as a safe haven,” he said, warning that gold could fall as it did in December.
“It’s a lot of money coming in as there’s a more narrow group of assets that are in vogue and gold is one of them.”
As in December, speculative trading has also contributed to gold’s rise. The CME, where the Comex futures contract for gold is traded, reported a three-month high in a measure of volatility that indicates options traders have been positioning for bullion prices to rise.
