Gold prices continued their upward trajectory on Monday, hovering near record highs as market sentiment was bolstered by dovish signals from the U.S. Federal Reserve and a weakening dollar. Spot gold rose 0.6%, reaching $2,526.15 per ounce, just shy of last week's record high of $2,531.60. U.S. gold futures also saw a 0.6% increase, climbing to $2,561.90 per ounce.
The driving force behind this surge is the growing expectation of an imminent interest rate cut by the Federal Reserve. Fed Chair Jerome Powell's recent comments have strengthened the belief that the central bank will begin reducing rates as early as September. "Powell strongly signaled the potential for U.S. rate cuts, indicating that upcoming economic data would determine their pace and scale, which could boost gold investment demand," said UBS analyst Giovanni Staunovo.
A lower interest rate environment typically enhances the appeal of non-yielding assets like gold. As the dollar hit its lowest point in more than a year, gold became more affordable for holders of other currencies, further fueling demand. The CME FedWatch tool indicates a 65% probability of a 25 basis point cut and a 35% chance of a 50 basis point reduction in September, according to market data.
Central banks around the world continue to show strong demand for gold, driven by fears of sanctions, geopolitical uncertainties, and ballooning debts. This central bank demand is expected to remain robust, even as gold prices hover near record highs. "Central banks' purchases are linked to a mandate to buy a specific amount of gold over a specific time frame, and this trend is likely to continue despite the high prices," Staunovo added.
Gold's rally is also being supported by seasonal demand from major consumers like India and China. In India, the upcoming festive season is expected to drive robust gold purchases, especially after a significant reduction in import duties made prices more appealing. In China, gold demand is anticipated to strengthen as consumers adjust to higher prices, industry officials noted.
While gold has been the primary beneficiary of the current market conditions, other precious metals have also seen gains, albeit more modest. Spot silver rose 1% to $30.11 per ounce, although it has not fully benefited from the geopolitical risk premium that has been aiding gold. "Sluggishness in global industrial production has capped the upside for silver," analysts at Heraeus said in a note. However, with interest rate cuts on the horizon, silver could begin to rise in tandem with gold.
Platinum gained 0.8% to $970.76, while palladium eased slightly by 0.3% to $960.03.
The recent surge in gold prices has also been fueled by safe-haven demand amid escalating geopolitical tensions. The ongoing conflicts between Israel and Hezbollah, as well as the continued hostilities between Russia and Ukraine, have contributed to the bullish sentiment in the gold market. These geopolitical risks have made gold an attractive asset for investors seeking to protect their portfolios from potential market disruptions.
The outlook for gold remains positive, with analysts predicting that the metal could break new records if the Federal Reserve moves forward with the anticipated rate cuts. As global uncertainties continue to weigh on financial markets, gold is likely to remain a key asset for investors looking for stability in uncertain times.