Gold price has hit a new record high, reaching $2,483/oz last week before falling back. On Tuesday it was trading around $2,405/oz (£1,862/oz), still up 16.5% since the beginning of the year.
The US Federal Reserve is widely expected to start cutting interest rates in September. Lower rates are good for gold because they reduce the competition from rival assets such as government bonds (which, unlike gold, pay investors an income).
Talk of an inflationary Trump presidency is also driving interest in monetary safe havens like gold. This is all straight out of the classic gold trader playbook, says Hamad Hussain for Capital Economics. Bets on Fed rate cuts and a weaker dollar are usually good for the yellow metal. More remarkable has been its relative resilience even in the face of high interest rates. Gold prices managed to surge this spring, for example, despite a stronger dollar – usually a headwind for the metal.
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That was chiefly down to demand from China, but such purchases may ease back as high prices disincentivise further buying. China’s central bank appears to have paused gold purchases since May after adding to stocks for 18 months in a row.
Despite US rate cuts, gold might thus be set to ease back for the rest of the year. The structural case remains compelling, says Harold James for Project Syndicate. In 2000, China had relatively low gold reserves of 395 tons, but that has since increased to 2,260 tons.
Russia and Turkey have built up their own gold war chests amid tensions with the US, while even US allies such as the Czechs and the Poles have been “augmenting their reserves” of the metal.
The dollar’s dominance is being “challenged by fiscal worries”, Trump’s desire for a dollar devaluation and new technology such as cryptocurrencies. Gold’s rise is “symptomatic of a changing world order”.
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