· Why have Gold prices risen to record highs?
· Federal Reserve rate cut expectations
· Safe haven demand amid geopolitical uncertainty
· Central bank buying
· Trading Gold with PXBT
Gold prices have been on a tear this year, rising for seven straight months. The precious metal trades 21% higher year to date, reaching a record high of $2531 while outperforming global stocks. The US SP500 is up 16% this year, the Nikkei 225 has booked gains of 10%, and the EuroStoxx 50 has risen 6%. Gold has also outperformed the most major currency pairs. Few markets have risen as fast as Gold so far in 2024.
Why have Gold prices risen to record highs?
Federal Reserve rate cut expectations
One of the main reasons that gold prices have risen so sharply this year is the expectation that the Federal Reserve will cut interest rates aggressively as US inflation has cooled towards the central bank’s 2% target, and growth is showing signs of slowing. Weak data has even raised concerns that the US could be heading for a recession, and the Fed may have to cut rates more aggressively.
Lower interest rates benefit gold prices for two main reasons. Firstly, gold is non-yielding, meaning it doesn't pay an income; therefore, demand for gold increases as interest rates decrease. Put another way, gold prices often rise when interest rates are lowered, and the opportunity cost of holding non-yielding gold falls.
Secondly, the US dollar often declines when the Federal Reserve lowers US interest rates. Since gold is priced in US dollars, the gold price and the USD price are inversely correlated. When the USD falls, the price of Gold can rise, and vice versa—a weaker USD can boost the price of Gold.
The market is pricing around 110 basis points of rate cuts throughout the rest of the year, with further cuts expected in 2025, which could support higher gold prices.
However, should central banks cut rates less than expected, this could limit the upside in Gold and potentially pull the precious metal lower.
Safe haven demand amid geopolitical uncertainty
Gold is also seen as a safe haven in times of geopolitical and economic uncertainty. Geopolitical uncertainty has also been an important driver of gold demand, helping the price to all-time highs. As a safe-haven asset, gold's price often increases during times of elevated geopolitical tensions and policy uncertainty. Gold buying ramped up significantly following the breakup of the war in Ukraine in 2022 and, more recently, with the start of the Israel—Gaza war.
These geopolitical tensions are not expected to defuse anytime soon. Instead, there are fears that the war in the Middle East could broaden to include Iran-backed Hezbollah, which could fuel further safe-haven demand.
Should geopolitical risk ease, Gold prices could slip lower amid safe haven outflows.
Central bank buying
Central banks have shown an ongoing commitment to buying and accumulating gold. While the overall demand for central bank buying has eased as the gold price has reached record highs, according to the World Gold Council, demand remains buoyant. Evidence of central bank buying can be seen in July as global central banks added 37 tonnes to official reserves, representing a 206% month-on-month increase, the highest monthly total since January.
Central banks are still keen to accumulate gold despite the elevated price, given its role as a store of value and its performance in times of crisis. China has been a key buyer of gold and, according to reports, has around 20% of its reserves in the precious metal. According to the World Gold Council, the PBoC bought 224.9 tonnes of gold, more than it sold in 2023, equating to around 5% of all global gold demand. The buying continued this year as China reduced its US dollar reserves. The actual size of China’s gold holding doesn’t stand out compared to other central banks, and the WGC data puts it seventh among major countries, behind Russia and the US, among others. This means that China could continue to build its gold reserves to diversify, which could support the higher gold price.
Trading Gold with PXBT
There are many ways to benefit from changes in Gold prices, from buying physical Gold to trading it through an online brokerage such as PXBT.
PXBT is a regulated Forex and CFD broker that offers a wide range of Commodities, Currencies, and Indices to trade on the MT5 platform, including Gold. It also offers low fees and ultra-fast execution. PXBT is committed to delivering the latest brokerage infrastructure and deep expertise for traders across the globe, with its industry-leading platform providing an intuitive interface, charting options, and mobile trading.
Disclaimer: The information provided herein is for informational purposes only and does not constitute personal recommendation or investment advice. Past performance is not a reliable indicator of future results. The financial products offered by the Company are complex and come with a high risk of losing money rapidly due to leverage. These products may not be appropriate for every investor. You should carefully assess whether you understand how these leveraged products operate and whether you can tolerate the high risk of losing your money. PXBT Trading Ltd does not serve clients from Restricted Jurisdictions as listed on its website.
