NEW YORK - Gold rose to a record as indications the United States Federal Reserve is getting closer to cutting interest rates added impetus to a rally that has also been driven by geopolitical tensions and robust Chinese demand.
Bullion jumped to as much as US$2,265.73 an ounce on April 1, up 1.6 per cent from its close on March 28, after setting a series of peaks in recent sessions.
The Fed’s preferred gauge of underlying inflation cooled in February, data showed on March 29, when many markets were closed. That adds to the case for a reduction in borrowing costs, although the US central bank has been striking a cautious tone.
A host of positive drivers have pushed up gold by around 14 per cent since the middle of February.
The prospect of monetary easing by major central banks, and elevated tensions in the Middle East and Ukraine, have underpinned the rally. There has also been strong buying by central banks, particularly in China, while consumers there have been loading up on bullion amid ongoing problems in Asia’s largest economy.
After the inflation figures, Fed chairman Jerome Powell said the prints were “pretty much in line with our expectations”, and there was not any rush to cut rates. Later this week, investors will get a further chance to gauge the outlook for the US economy and central bank policy, with monthly payrolls expected to increase by at least 200,000 for a fourth straight month.
Swaps markets are pricing in a 61 per cent chance of a cut in June, up from 57 per cent on March 28. Lower rates are positive for gold, which does not offer any interest.
Mr Warren Patterson, head of commodities strategy at ING Group, said: “Inflation data, and Powell’s comments in particular, have provided a further boost to gold, with the market becoming increasingly convinced that the Fed will start to cut rates in June.
“It wouldn’t take much of a catalyst to see a pullback in the short term” and that could be a stronger than expected US jobs report, he said.
Spot gold rose 1.4 per cent to US$2,261.14 an ounce as at 3.37pm in Singapore on April 1, after climbing 3 per cent last week. Its 14-day relative-strength index was near 79, above the 70 level that indicates to some investors that prices may have risen too far and too fast.
Gold demand in China has been pronounced in recent quarters. The nation’s central bank has added substantial volumes of bullion to its reserves, boosting holdings in each of the past 16 months. In addition, gold-buying has been gaining in popularity among younger Chinese.
The metal’s positive prospects have been endorsed by a slew of leading banks. Among them, JPMorgan Chase said in March that the metal was its No. 1 pick in commodities markets, and the price may reach US$2,500 an ounce in 2024. Goldman Sachs Group said it sees potential for US$2,300 an ounce, highlighting the benefits from a lower interest-rate environment.
Still, gold’s ascent has yet to strike a chord among investors who favour exposure to the metal through exchange-traded funds (ETFs). Worldwide holdings in bullion-backed ETFs shrank by more than 100 tons in the first quarter, hitting the lowest level since 2019 in mid-March, before a small uptick, according to a Bloomberg tally. BLOOMBERG
