Gold strikes record above US$2,100 as Fed rate cut bets surge

Hong Kong – Gold prices hit a record high above US$2,100 an ounce on Dec 4 as

traders grow increasingly confident that the Federal Reserve will cut interest rates

in the new year.

The precious metal surged 3.1 per cent to US$2,135.39 in early Asian trade, topping the previous all-time high it set on Aug 7, 2020, during the Covid-19 pandemic, before paring much of those gains.

It was trading at US$2085.92, up 0.7 per cent, as at 10.19am.

A bullion rally that has been under way since early October was turbocharged on Dec 1 when comments by Fed chairman Jerome Powell that monetary policy is “well into restrictive territory” spurred a plunge in the US dollar and Treasury yields, a positive for non-interesting bearing gold.

Mr Powell then attempted to push back against the rate-cut optimism, but Wall Street responded by doubling down, despite his warning that “it would be premature to conclude with confidence that we have achieved a sufficiently restrictive stance, or to speculate on when policy might ease”.

Swaps markets now see around a 60 per cent chance of a reduction in March and are fully pricing in a cut in May.

There has been “a big momentum shift” on gold, said Mr Chris Weston, head of research at Pepperstone Group.

But US labour data later this week could pose an element of downside risk to bullion, with bets on lower real rates into 2024 looking very aggressive, he added.

Shares of gold miners were also up on Dec 4: Newmont Corp rose as much as 3.6 per cent in Sydney, and Northern Star Resources climbed as much as 5.3 per cent.

Bullion has surged around 16 per cent from a low in early October. It benefited from a spate of haven buying following

the Hamas attack on Israel,

and then, in recent weeks, the rally got extra impetus from growing expectations for US rate cuts.

It has been bolstered by a drop of 60 basis points in the US 10-year Treasury yield and a decline of almost 3 per cent in a gauge of the dollar over November.

Gold is trading at a hefty premium to models of its price based on its historic relationship with the US dollar and Treasuries.

That dynamic has persisted for most of the past year, driven by record buying by central banks, which helped bullion weather persistent outflows by gold-backed exchange traded funds (ETFs).

Gold ETF holdings have fallen sharply since the end of May, but have shown signs of stabilising since mid-October. But they fell last week following a run of five weekly gains. BLOOMBERG, AFP