Gold prices have risen to a record high, fueled by the US Federal Reserve signaling three interest rate cuts would be “reasonable” later this year.
The prized asset has risen by 15 percent since mid-February after gaining 0.6 percent to hit $2,295 a troy ounce on Wednesday. The likely conflagration of the Middle East conflict is also a contributing factor, the Financial Times reports.
Gold is expected to gain from a decrease in the supposed real interest rates. “The expectation for falling real rates remains an important driver for the bullish outlook on gold,” noted UBS precious metal analyst Joni Teves.
Experts attributed the surge in gold acquisitions as a hedge against increasing inflationary risks and a shielding mechanism in light of spikes in US debt levels.
Gold’s rally was further bolstered by investors purchasing call options in the futures market to explore a heightened demand from central banks, and Chinese buyers deepening their gold holding at an all-time high.
Countries worldwide have increased their appetite for the yellow metal to protect their foreign reserves against devaluation due to the greenback’s status as the world’s key means of settlement.
Bidenomics, the use of the dollar as a geopolitical tool by the West, rising geopolitical tensions and the extensive sanctions imposed by the US on Russia, including asset seizures, have stirred concerns among world governments. This has led some of them to consider de-dollarization in response to the economic challenges, including recession and inflationary pressures.
The unraveling price of gold has provoked some economists to assert that Gold's cost above $2,000 will remain unchanged through 2024.
"First of all, I think it shows that people lose trust in the US dollar, but also in American institutions," Claudio Grass, Mises Institute ambassador and an independent precious metals advisor based out of Switzerland, told Sputnik. "On the other hand, the world is splitting apart again. And the East is shifting, understandably, away from the US dollar as an international reserve currency because it has been weaponized as a political tool. The Fed will have to reduce interest rates in the future or face a deflationary collapse."
The US dollar crashed by 2.7 percent against other main global currencies in 2023 — its worst-performing year since the post-COVID-19 pandemic in 2020.
In Februart, China increased its official gold reserves for the 16th consecutive month, boosting its total holdings by 12 tons to reach 2,257 tons, representing 4.3 percent of the nation's foreign exchange reserves. Russia's gold reserves also surged to 2,332 tons — marking 26 percent, the world’s largest holding, according to the World Gold Council.