Gold Hits New Record High on Rising US Fed Rate Cut Expectations

The spot gold price surged to a record USD 2450.49 per ounce earlier today. This year, gold prices have jumped 18.65 per cent, outperforming both equities and bonds. The spike follows recent US inflation and retail sales data that have increased market expectations for at least two Federal Reserve rate cuts within the year.

Data from last week showed a moderation in inflation, prompting traders to predict a 65 per cent likelihood of a US rate cut by September. Historically, gold thrives during periods of falling interest rates as investors prefer it over income-producing assets like bonds.

Investors are now keenly awaiting the release of the Fed's last policy meeting minutes on Wednesday, along with comments from various Fed officials, to glean further insights into the central bank's future moves.

Geopolitical Tensions And Global Central Banks

Adding to the bullish sentiment for gold are the renewed geopolitical tensions in the Middle East, which traditionally drive safe-haven demand for the precious metal.

Central banks worldwide are also signalling a readiness to cut interest rates. Bank of England Governor Andrew Bailey suggested potential rate cuts as early as next month, while Sweden's central bank recently executed its first interest rate cut in eight years.

Emerging Market Central Banks Lead Gold Purchases

Emerging central banks continue their buying spree, with China at the forefront. The People’s Bank of China (PBoC) reported gold purchases for the 18th consecutive month in April, increasing its total gold holdings to 2,264 tonnes. This represents 4.9 per cent of the PBoC's total reserves, the highest proportion ever recorded.

China's strategy includes diversifying its forex reserves away from the US dollar, evidenced by its record sales of Treasury and US agency bonds. In the first quarter alone, Beijing sold USD 53.3 billion worth of these securities, according to Bloomberg's analysis of US Department of Treasury data.

Similarly, India saw a significant rise in gold imports, which more than doubled to USD 3.11 billion in April from USD 1.53 billion in March. Gold prices in Delhi during this period fluctuated between Rs 76,400 and Rs 67,755 per 10 grams.

Despite a dip in demand in March due to jewellers stocking up for the wedding season, demand rebounded strongly in April, spurred by ongoing gold purchases by the central bank and the marriage season.

According to the World Gold Council, central banks bought 290 tonnes of gold in the first quarter of this year, highlighting gold's enduring value in international reserve portfolios amid market volatility and heightened risk.

Silver Reaches Decade-High Milestone

Silver has also seen impressive gains, recently reaching multi-year highs. On Friday, spot silver prices surpassed USD 30 an ounce, the highest level since February 2013, closing 6.5 per cent higher at USD 31.49 an ounce. In today’s trade, prices have exceeded USD 32 per ounce.

This year, spot silver has surged by 32 per cent, outperforming gold and becoming one of the best-performing major commodities. The rally is driven by robust investment and industrial demand.

As gold and silver prices continue to climb, the precious metals market is witnessing substantial growth fueled by economic, geopolitical, and central bank activities. With the US Federal Reserve and other global central banks hinting at potential rate cuts, and with rising geopolitical tensions, the outlook for gold and silver remains bullish. Investors will closely watch upcoming economic indicators and central bank announcements to navigate this dynamic market landscape.