Global gold witnessed another week of gains, reaching new historic levels after consolidating its upward trend. This followed the US Federal Reserve’s sharp shift in monetary policy, which began cutting interest rates significantly.
The price of an ounce of gold rose by 1.7% over the past week, marking the second consecutive week of increases, reaching a historic high of $2,625 per ounce before closing the week at $2,622 per ounce.
Since the beginning of 2024, the price of gold has risen by 27.1%, amounting to a $563 increase, hitting the highest level ever recorded yesterday. On Friday, gold rose 1.4%, breaking through the $2,600 per ounce level for the first time.
The strong push behind gold’s hike to these record levels came from the U.S. Federal Reserve, which began a rate-cutting cycle with a larger-than-usual reduction of 50 basis points on Wednesday, bringing interest rates down to 5.00%. Federal Reserve Chair Jerome Powell stated that this significant cut aims to demonstrate the bank’s commitment to maintaining a low unemployment rate now that inflation has subsided.
Powell also eased some concerns about an economic slowdown, noting that the risks between rising inflation and a weaker labour market are currently balanced. He hinted at the possibility of further interest rate cuts.
Markets have priced 125 basis points in interest rate cuts by the end of the year, while the Federal Reserve’s dot plot projection shows a reduction of 100 basis points by the end of this year.
Powell also stated that the Federal Reserve has no intention of returning to the ultra-low interest rate environment seen during the COVID-19 pandemic, and mentioned that the Fed’s neutral interest rate would be significantly higher than before.
Financial markets interpreted these statements to mean that US interest rates will remain higher in the medium to long term, according to an analytical report by Gold Bullion.
At the end of the week, traders and investors had fully digested the major events, including the interest rate cut by the US Federal Reserve and the rate held by both the Bank of England and the Bank of Japan. Consequently, markets began to react to gold after these events concluded.
A low interest rate environment is ideal for the rise of gold prices, as it reduces the opportunity cost of holding the precious metal, which does not yield any returns for its holders.
