Gold prices hit a record high on Tuesday, reaching $2,465.30, fueled by the growing anticipation of a September interest rate cut. This surge in demand for bullion was further ignited by the softening inflation data in June and dovish comments from Federal Reserve Chair Jerome Powell. As a result, markets are now pricing in a 100% likelihood of a rate cut next month, according to the CME FedWatch tool.
Another factor contributing to the rally in gold prices is the weakening of the U.S. dollar, which rebounded on Tuesday after hitting a five-week low. This decline in the dollar has bolstered the demand for bullion as investors continue to show interest in “buy-the-dip” opportunities. With the market hovering above the $2400 mark, analysts believe that the risks are tilted towards further upside movement in gold prices.
The surge in gold prices in the first half of 2024 was underpinned by a sustained increase in demand from central banks worldwide. This heightened interest in the safe haven asset was driven by escalating geopolitical risks on a global scale. Central bank purchases of gold are currently at their highest levels since the late 1960s, with many institutions diversifying their reserves away from USD- and EUR-denominated assets in favor of gold.
In addition to the surge in gold prices, gold mining stocks also experienced significant gains on Tuesday. The VanEck Gold Miners ETF rose by 3%, marking its fifth winning day in the last six sessions. The shares of Harmony Gold and Gold Fields, both listed in the U.S., saw increases of 16% and 6%, respectively. This uptrend in both gold prices and gold mining stocks reflects the bullish sentiment surrounding the precious metal.
The record highs reached by gold prices are a result of a combination of factors, including expectations of interest rate cuts, a weakening U.S. dollar, central bank demand, and geopolitical risks. As investors continue to seek safe haven assets and diversify their portfolios, gold remains an attractive option in the current economic climate. The recent rally in gold prices and gold mining stocks highlights the ongoing appeal of gold as a valuable and resilient asset in times of uncertainty.