If you have it buried in your backyard, you may want to check on it, as the price for gold rose above expectations on Tuesday, potentially signaling that a rate cut from the Federal Reserve could be near.
Gold Prices Surge
Gold futures rose 1.7% to $2,471.10 on Tuesday, topping a high set on May 20 of $2,454.20 reached May 20.
Meanwhile, spot gold hit $2,465.95 during the session, a jump of 1.8%, which is also an all-time high according to LSEG data going back to the 1960s.
Factors Driving Gold Price Increase
Gold prices had approached and hit all-time highs earlier this year before sinking back down as the possibility of rate cuts became less likely, dampening the mood of investors.
However, a combination of June’s inflation data, which showed things moving in the right direction, and Fed Chair Jerome Powell’s recent comments on potential rate cuts, gold prices began to rise.
Market Expectations and Central Bank Actions
CNBC is reporting now that futures trading, tracked by the CME FedWatch tool, shows markets are pricing in 100% odds of a rate cut coming in September.
This also comes as Federal Reserve Governor Christopher Waller said on Wednesday that we were “getting closer” to rate cuts.
“I believe current data are consistent with achieving a soft landing, and I will be looking for data over the next couple months to buttress this view,” Waller said.
Central Banks’ Return to Gold
After some tough stretches in 2023, gold had a great start to the first half of 2024, riding on the back of a multi-year spike in demand for the metal from the Fed and other central banks around the world.
UBS reports that central banks are buying more gold now than they have in the last 50 years.
“With some central banks now questioning the safety of holding USD- and EUR-denominated assets (following the financial and debt crises and more recently the war in Ukraine), many are choosing to instead fill their reserves with gold,” a note from UBS shared last month.
Insight:
Despite initial volatility earlier in the year, the upward trajectory of gold prices is now driven by a combination of factors such as market expectations of a potential rate cut by the Federal Reserve and central banks worldwide increasing their gold reserves as a hedge against economic uncertainties. The return to gold as a valuable asset underscores the ongoing trend of diversification in central bank reserve portfolios.
