Gold has smashed through the $2,500 mark per ounce for the first time, driven by growing anticipation that the U.S. Federal Reserve may soon start slashing interest rates.
Spot gold surged as much as 2.2% on Friday, setting a new record after a disappointing report on the U.S. housing market strengthened expectations of swift and significant rate cuts by the Fed.
Lower rates typically buoy gold, which yields no interest.
This year, the precious metal has surged over 20%, fueled by optimism about monetary easing and large-scale purchases by central banks.
Heightened geopolitical tensions—like those in the Middle East and Russia’s ongoing conflict with Ukraine—have further boosted gold’s appeal as a safe-haven asset.
Gold’s ascent began earlier this year, catching many experts off guard.
The climb persisted even as traders adjusted their expectations on the timing of rate cuts.
Lately, the metal has inched higher amid growing consensus that U.S. officials are poised to lower rates soon.
Recent U.S. economic data has bolstered the market belief that the Fed is on the verge of easing borrowing costs, currently at a two-decade high, bringing gold’s traditional drivers back into play.
Yet, there’s ongoing debate over the depth of the Fed’s potential rate cuts, given mixed signals about the U.S. economy’s health.
Gold investors, who tend to expect the Fed to take more aggressive monetary action, might see prices climbing to $2,700 in the coming quarters, according to Bart Melek, global head of commodity strategy at TD Securities.
He noted that “the macro/monetary and central bank ducks are aligning in a row.”
Speculators have ramped up their bullish positions on Comex gold futures to levels not seen in nearly four years, according to data from the Commodity Futures Trading Commission.
Meanwhile, business investments in gold exchange-traded funds (ETFs) have risen in recent months after a couple of years of outflows, Bloomberg data shows.
On Friday, traders analyzed the latest economic indicators for hints about the Fed’s next move.
The data revealed that new-home construction in the U.S. fell to its lowest level since the pandemic’s immediate aftermath, as builders faced weak demand.
“It’s another indicator that a recession’s on its way,” said Bob Haberkorn, senior market strategist at RJO Futures.
The Fed will cut rates “and go further than what was expected before.”
As of 4:06 p.m. in New York, spot gold had climbed 2.1% to $2,508.82 per ounce.
Meanwhile, silver and palladium advanced, while platinum remained relatively unchanged.
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