Gold prices hit new record ahead of expected interest rate cuts

Gold prices rose to a record high on Tuesday amid widespread expectations of imminent interest rate cuts.

Spot gold was trading at $2,255 an ounce in late morning trading, up 22 percent since January.

Analysts have largely attributed the rise to forecasts of interest rate cuts by central banks such as the Federal Reserve and the Bank of England in the coming months.

The relationship between gold prices and interest rates in the United States tends to be inversely correlated.

If the latter is relatively low, that generally reduces the attractiveness of bonds and cash investments relative to other asset classes, making gold a more attractive prospect.

A slim majority of economists polled by Reuters in August expect the Fed to cut interest rates by 25 basis points at each of its three remaining meetings this year.

Investors will be watching Federal Reserve Chairman Jerome Powell’s speech at the upcoming Jackson Hole Symposium on Friday to gauge whether rates will fall in September.

However, gold prices depend on a number of factors, including inflation, movements of the US dollar and demand for gold among consumers and central banks.

The People’s Bank of China has embarked on a considerable gold buying spree since late 2022, acquiring 7.2 million ounces last year alone, according to the World Gold Council.

It halted purchases in May and June due to high prices, but has recently granted several commercial banks fresh gold import quotas on the expectation that demand will pick up, giving a fresh boost to prices.

Other emerging market central banks such as Poland, Turkey and India have been buying gold in large quantities this year.

Anita Wright, a financial adviser at Bolton James, notes that BRICS countries with a “growing distrust” of the US dollar are “accelerating their efforts towards de-dollarisation” by investing in gold.

Prices are getting an added boost from geopolitical tensions in the Middle East and Russia’s war in Ukraine, “fuelling a flight to safety,” said James Eagle, founder of Eeagli.

Gold is often considered a safe haven in times of crisis because it acts as a hedge against inflation and provides diversification for investors.