Gold's Historic Surge: Breaking Records Amid Fed Speculation and Global Tensions

📝 SUMMARY: Gold achieved a historic milestone, touching a record high of $2,141.79 an ounce, eclipsing its previous peak set three months ago. This rally, nearly $100 over the past five sessions, reflects a confluence of factors, including speculation about a potential pivot in Federal Reserve policy, escalating geopolitical tensions, and concerns over a possible correction in equity markets. The surge in gold prices, over 4% since last Thursday, has been fueled by expectations of monetary easing, geopolitical strife, and the looming risk of an equity market downturn.

Market analysts point to a variety of drivers behind this rally. Expectations of softer monetary policy by the Federal Reserve have played a significant role, with swap markets indicating a 64% likelihood of a rate cut by June. Lower interest rates tend to favor gold, which, unlike interest-bearing assets, doesn't yield returns. Additionally, macro funds and commodity trading advisors have jumped on the gold bandwagon, with recent CFTC data revealing a net increase in bullish bets on gold by hedge funds and money managers as of February 27.

However, the rally also highlights an intriguing disconnect between spot gold prices and the flows in bullion-backed exchange traded funds (ETFs), particularly with outflows from major ETFs like SPDR Gold Shares. Despite this, central bank buying and physical demand for gold bars and coins have supported high prices.

Gold's appeal as a haven asset is increasingly pronounced against the backdrop of elevated geopolitical risks, including Middle East tensions and uncertainties surrounding China's economy and the upcoming US presidential election. Analysts forecast that gold prices will continue to ascend this year, buoyed by its status as a safe-haven amidst ongoing geopolitical uncertainty.

Meanwhile, gold's climb to new heights coincided with a surge in bitcoin, prompting debates on the safe-haven status of digital currencies. Despite this, gold's enduring value is highlighted, with its price adjustment for inflation still below the 1980 peak, underscoring its potential for further gains in today's volatile market environment.

🔍 SOURCE: https://www.bloomberg.com/news/articles/2024-03-05/gold-climbs-to-record-as-momentum-builds-on-rate-bets?srnd=markets-vp