Gold Soars to All-Time High as Federal Reserve Inflation Measure Boosts Market

Gold Soars to All-Time High as Federal Reserve Inflation Measure Boosts Market

(Bloomberg) — Gold hit a record high as indications the Federal Reserve is moving closer to cutting interest rates added momentum to a rally also driven by geopolitical tensions and strong Chinese demand .

Most read on Bloomberg

Bullion surged to $2,265.73 an ounce on Monday, up 1.6% from Thursday’s close, after hitting a series of highs in recent sessions.

The Fed’s preferred underlying inflation gauge – the core index of personal consumption expenditures – cooled in February, data showed Friday, as many markets were closed. This argues in favor of reducing borrowing costs, even if the central bank has adopted a cautious tone.

A host of positive factors have pushed bullion up about 14% since mid-February. The prospect of monetary easing from major central banks and increased tensions in the Middle East and Ukraine supported the recovery. Central banks also made big purchases, particularly in China, as consumers there stocked up on bullion amid ongoing problems in Asia’s largest economy.

After the inflation figures were released, Fed Chairman Jerome Powell said the numbers were “roughly in line with our expectations” and that there was no rush to cut rates . Later this week, investors will have another opportunity to assess the outlook for the U.S. economy and central bank policy, with monthly payrolls expected to rise by at least 200,000 for a fourth straight month.

Swap markets put the probability of a Fed cut in June at 61%, up from 57% on Thursday. Lower rates are generally positive for gold, which does not earn interest.

“Inflation data, and Powell’s comments in particular, have given gold another boost as the market becomes increasingly confident the Fed will begin cutting rates in June,” said Warren Patterson , head of raw materials strategy at ING Groep NV. However, “it wouldn’t take much of a catalyst to see a near-term pullback,” and that could result in a better-than-expected U.S. jobs report, he said.

Chinese request

Spot gold rose 1.3% to $2,258.57 an ounce as of 12:42 p.m. in Singapore, after climbing 3% last week. Its 14-day relative strength index was near 79, above the 70 level, indicating to some investors that prices may have risen too far and too quickly. The Bloomberg Dollar Spot Index fell 0.1%, while silver, platinum and palladium all traded higher.

Demand for gold in China has been pronounced in recent quarters. The country’s central bank has added substantial volumes of bullion to its reserves, increasing its holdings in each of the past 16 months. In addition, buying gold is gaining popularity among young Chinese people.

Read more: Chinese New Year buyers favor gold as stocks, real estate collapse

The positive outlook for the metal has been endorsed by a large number of major banks. Among them, JPMorgan Chase & Co. said last month that the metal was its No. 1 pick in commodity markets and that the price could reach $2,500 an ounce this year. Goldman Sachs Group Inc. said it sees upside to $2,300, highlighting the benefits of a lower interest rate environment.

Yet gold’s rise has yet to strike a chord among investors who favor exposure to the metal through exchange-traded funds. Global holdings of bullion-backed ETFs fell by more than 100 tonnes in the first quarter, hitting the lowest level since 2019 in mid-March, before rising slightly, according to a Bloomberg tally.

Most read from Bloomberg Businessweek

©2024 Bloomberg LP

Source Reference

Latest stories