The price of gold hit a record high on Monday, reaching as high as $2,135 an ounce before falling later in the day to trade at $2,023. This surge in gold prices has been driven by rising expectations among investors for interest rate cuts, a weak US dollar, and global geopolitical tensions.
Investors are increasingly confident that the US Federal Reserve will begin cutting borrowing costs in March next year, largely due to concerns about rising inflation. As a result, the demand for US Treasuries has declined, making gold, which does not pay interest, a more attractive investment.
The yield on the 10-year US Treasury bill has fallen from a 16-year high of 5% in October to 4.3% on Monday, further contributing to the favorable environment for gold as an investment.
Additionally, the US dollar has weakened against a basket of major currencies, making gold more attractive for investors outside the United States. Longer-term, gold has also benefited from increased geopolitical risk, with investors turning to the metal as a safe haven asset due to global unrest.
Central banks in emerging markets have been stocking up on gold as a secure alternative to traditional foreign exchange reserves. The World Gold Council reported that emerging market central banks bought 473 metric tons of gold on average between 2010 and 2021, but last year they bought 1,100 metric tons and, in the first three quarters of this year, 800 metric tons, with a quarter of all central banks planning to increase their gold reserves over the next 12 months.
The combination of expectations for interest rate cuts, a weak US dollar, and geopolitical tensions has fueled investor demand for gold, with Chief Investment Officer Victoria Scholar stating that “expectations of Fed rate cuts next year have put downward pressure on the US dollar, adding attractiveness to gold.”