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The price of gold has surged to an all-time high, boosted by a fall in the US dollar as traders ratchet up their bets that the Federal Reserve will cut interest rates next year.
The haven asset rallied as much as 3 per cent to $2,135 per troy ounce on Monday, a new record, before slipping to $2,025 per troy ounce, according to LSEG data.
The latest rise has been driven by a 3.1 per cent fall in the dollar against a basket of six other currencies since the start of November, which has left it slightly above its lowest level in nearly four months. The fall — alongside a drop in US Treasury yields since mid-October — has come as investors have grown more confident that the Fed will lower borrowing costs early next year.
Gold’s gains are the latest leg in a powerful rally that began in November last year, driven by rampant central bank purchasing and investor concerns over the conflicts in Ukraine and in Israel and Gaza. That demand lifted the price of the yellow metal, in spite of a rise in real interest rates over most of the past year — something that would normally be expected to reduce appetite for non-yielding gold.
Gold reached its previous record high of $2,072.49 per troy ounce in August 2020 when the coronavirus pandemic was hitting the US economy, leading investors to snap up the precious metal.
The price also momentarily broke through that level on Friday, reaching a high of $2,075.09 a troy ounce. Gold remains far from its inflation-adjusted high of about $3,300 per troy ounce achieved in 1980.
Ross Norman, chief executive of Metals Daily, said the latest rise was likely to be largely speculative flows from futures traders during a time of thin market conditions.
“Traders are swimming with the tide — you have a falling dollar here, a strong seasonal period when bulls can take on the market without compunction, and geopolitical tensions,” he said.
The recent fall in bond yields, as investors bet that interest rates have peaked and will soon start to fall, has added extra impetus to gold’s 12 per cent ascent so far in the fourth quarter. Fed chair Jay Powell warned on Friday that the central bank could increase rates further but added that policy was already in “restrictive territory”.
Analysts warned that gold may struggle to hold on to gains and trade consistently above the $2,075 per troy ounce mark unless more sustained buying comes through from a broader range of market participants.
“Gold seems to have run ahead of itself somewhat,” said Marcus Garvey, head of commodities strategy at Macquarie, who sees $2,250 per troy ounce as a realistic price if inflation continues to ease in the US.
“The key to making a more sustainable break higher is likely to include the return of ETF [exchange traded fund] buying, which is still largely absent,” he said.