(Bloomberg) -- Gold hit a record high as hopes for U.S. Federal Reserve rate cuts grow and some traders ramped up bets on a second Donald Trump presidency.
Spot bullion rose as high as US$2,462.54 an ounce, moving past a previous all-time peak set in late May. The rally comes as signs of slowing inflation in the U.S. fuel speculation the central bank will soon start lowering interest rates. High rates tend to be negative for gold, which bears no interest.
Even so, the metal has still soared nearly 20 per cent this year, supported by large purchases from central banks, strong consumer appetite in China and demand for haven assets amid geopolitical tensions. A recent uptick in holdings by exchange-traded funds is also aiding upward momentum.
“Optimism about U.S. interest rate cuts as more economic data supports the case for a Fed pivot is supporting gold,” Ewa Manthey, a commodities strategist at ING Bank NV, said earlier on Tuesday. “Gold is poised to keep its positive momentum going amid the current global geopolitical and macroeconomic landscape, while central bank demand is expected to grow.”
On Monday, Fed Chair Jerome Powell said recent data had given policymakers greater confidence that inflation is heading down to the central bank’s two per cent goal, and traders now see two quarter-point rate reductions this year.
Traders have been adding bets there will be three cuts this year after Goldman Sachs Group Inc. said conditions were ripe for easing, with “a solid rationale” for officials to lower rates as soon as July.
Gold’s latest rally isn’t necessarily unexpected. In June, consultancy Metals Focus predicted a fresh record this year, while earlier this month Citigroup Inc. said its base case for gold in 2025 was $2,700-$3,000 an ounce.
Trump momentum
Investors across markets are also weighing the growing likelihood that Trump will return to the White House, as his candidacy gains momentum following a failed assassination attempt over the weekend and the dismissal of a criminal case against him. A Trump presidency could have both potential positive and negative impacts on gold, said Giovanni Staunovo, a commodity analyst at UBS Group AG.
It may lead to “tax cuts, supporting a shift to equities, and eventually limiting faster rate cuts,” he said. Still, tax cuts would also impact U.S. fiscal balances, potentially weakening the dollar’s status and pushing buyers toward safe-haven assets such as gold, he said.
Spot gold was up 1.6 per cent at $2,461.22 an ounce by 4:32 p.m. in London. The Bloomberg Dollar Spot Index was little changed, while U.S. 10-year Treasury yields dropped. Silver and palladium advanced, while platinum edged slightly lower.
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