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  4. Gold prices are at yet another record high. That means rate cuts are coming soon.

Gold prices are at yet another record high. That means rate cuts are coming soon.

Filip De Mott   

Gold prices are at yet another record high. That means rate cuts are coming soon.
  • Gold reached a record of $2,454.20 per ounce on Monday as markets priced in Fed rate cuts.
  • The consensus estimate on Wall Street is two 25-basis-point reductions this year.

Gold set another record on Monday as Wall Street readies for monetary policy to ease this year.

The yellow metal notched an intraday record of $2,454.20 per ounce. This upside momentum comes as investors grow open to the possibility of interest-rate cuts this year. Since gold is a non-interest-bearing asset, it typically outperforms when rates fall.

Rate-cut sentiment shifted after April's cooler-than-expected consumer-price-index report, marking an upward inflection point in the price of gold and putting March's worryingly hot inflation prints in the rearview.

Now futures markets are back to expecting two 25-basis-point cuts this year, starting in September.

In another sign of rate-cut optimism, risk appetite among investors jumped markedly this month. An S&P Global survey indicated it rose to 28% in May — its highest reading since late 2021 — from 5% in April.

There are other geopolitical reasons to pile into gold, going beyond dovish expectations of rate decreases.

"The recent increases in the price of gold are largely driven by three factors: rising geopolitical tensions — including the unexpected death of Iran's president — the weakening of the dollar, and purchases by central banks," said Grzegorz Dróżdż, a market analyst at Conotoxia. If negative surprises are avoided this year, he expects gold to possibly rally beyond $2,500 in 2024.

Given that gold is a safe-haven asset, international face-offs have prompted more investors to buy the bullion. Meanwhile, US sanctions on Russian reserves sparked central banks to snap up the metal at a record pace.

The asset also benefits from a broader metals rally, with commodities such as copper and silver also breaching their records. Spot silver climbed past an 11-year high on Monday.

"Silver has made incredible gains over the past fortnight, and it does look overbought at current levels. That would suggest that some profit taking could come in now," said David Morrison, a senior market analyst at Trade Nation. "But traders would have to be very brave or foolhardy to short a market moving this way."

Correction: May 20, 2024 — An earlier version of this story misspelled the name of the Trade Nation analyst. He is David Morrison, not David Miarrions.

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