2023-12-04T05:46:16+00:00
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Gold prices jumped, on Monday, to new historical levels in early trading for the second day in a row.
Spot prices exceeded $2,100 per ounce, as Federal Reserve Chairman Jerome Powell’s statements strengthened traders’ confidence that the US central bank may cut interest rates early next year.
Markets currently expect a 70 percent chance of an interest rate cut by the US Federal Reserve by next March, according to the FedWatch tool from CME.
Markets viewed Jerome Powell’s comments as leaning towards monetary easing, which led to a decline in the dollar index and 10-year Treasury yields.
Analysts believe that gold prices are on their way to reaching new highs next year and may remain above $2,000 levels, citing geopolitical uncertainty, potential weakness of the US dollar, and potential cuts in interest rates.
Yellow metal prices achieved gains for two consecutive months, as geopolitical tensions in the Middle East boosted demand for safe haven assets, while expectations of lower interest rates provided further support. Gold typically rises in periods of economic and geopolitical uncertainty due to its status as a reliable store of value.
Heng Kun How, Head of Market Strategy and Global Economics and Markets Research at UOB, said: “The expected decline in both the US dollar and interest rates across 2024 is the main positive driver for gold… We expect gold prices to reach $2,200 by the end of 2024,” he said. CNBC.
For his part, Nicky Shiels, head of metals strategy at precious metals company MKS Pump, believes: “There is simply less leverage this time compared to 2011 in gold… which raises prices to more than $2,100 and puts $2,200 per ounce on the horizon.” “.
Spot gold prices rose to new historical levels at $2,110.8 per ounce, in early Monday trading, before giving up some of their gains to currently trade at $2,084.
On Friday, gold touched $2,075.09, exceeding the historical high recorded on August 7, 2020, at $2,072, according to LSEG data from Reuters.
US gold futures rose by about 1 percent to $2,107.60.
Bart Melek, head of commodity strategies at TD Securities, expects gold prices to average $2,100 in the second quarter of 2024, with aggressive central bank purchases acting as a major catalyst in boosting prices.
According to a recent study conducted by the World Gold Council, 24 percent of all central banks intend to increase their gold reserves in the next 12 months, with their increasing pessimism regarding the US dollar as a reserve asset.
“This means the possibility of increased demand from the formal sector in the coming years,” Melek said.
He added that a possible monetary policy pivot by the Fed in 2024 may also be on the cards.. Low interest rates could weaken the dollar, and a weak dollar makes gold cheaper for international buyers, leading to increased demand.
What factors are currently driving the price surge in gold?
Time.news Editor: Welcome to Time.news. Today, we’re diving deep into the world of precious metals, particularly gold, which has been making headlines lately due to a significant price surge. Joining us is Heng Kun How, Head of Market Strategy and Global Economics at UOB. Welcome, Heng!
Heng Kun How: Thank you for having me. It’s great to be here.
Time.news Editor: Let’s get right into it. Gold prices recently surpassed $2,100 per ounce for the second day in a row, which is quite extraordinary. What do you think is driving this surge?
Heng Kun How: There are several intertwined factors contributing to this rise. Firstly, remarks from Federal Reserve Chairman Jerome Powell indicate a possibility of interest rate cuts in the near future. This has decreased the attractiveness of the U.S. dollar and lowered Treasury yields, which typically drives investors towards gold.
Time.news Editor: Speaking of interest rates, market sentiment suggests there’s a 70 percent chance the Fed will cut rates by March. How do you see this impacting gold prices moving forward?
Heng Kun How: Historically, lower interest rates make gold more attractive because it reduces the opportunity cost of holding non-yielding assets like gold. This expectation of monetary easing, alongside geopolitical tension—particularly in the Middle East—has led many investors to seek the safe haven that gold provides. We predict gold prices could reach around $2,200 by the end of 2024 due to continued economic and geopolitical uncertainties.
Time.news Editor: It seems there’s a perfect storm brewing for gold investors. Can you elaborate on the role of geopolitical tensions in this scenario?
Heng Kun How: Absolutely. Geopolitical uncertainty often leads to increased demand for safe-haven assets. Conflicts or instability can undermine confidence in traditional financial markets, pushing investors toward gold as a reliable store of value. This demand often supports higher prices especially during times of unrest, which we’re currently witnessing.
Time.news Editor: With the dollar index declining, alongside these geopolitical tensions, do you think we could see a sustained trend for gold prices above the $2,000 mark?
Heng Kun How: I believe so. As long as the geopolitical landscape remains fraught and interest rates are on a downward trajectory, gold is likely to maintain its appeal. Analysts have observed that when prices break key resistance levels, as we’ve seen now, they typically continue to rise, signaling to investors that it’s an opportune time to invest in gold.
Time.news Editor: That’s a fascinating perspective. Now, do you think retail investors should take this opportunity to invest in gold, or are there potential risks they should be aware of?
Heng Kun How: While the outlook seems positive, it’s essential for retail investors to remain cautious. Market volatility can be unpredictable, especially with external factors like changes in fiscal policy or sudden geopolitical events. A diversified investment approach is typically the best strategy. That said, gold can certainly act as a hedge against inflation and market instability.
Time.news Editor: Great insights, Heng. Before we wrap up, what advice would you give to investors looking to navigate these uncertain times?
Heng Kun How: I would advise investors to stay informed about global economic indicators and central bank policies. Understanding the interplay between these factors and gold can provide valuable context for your investment decisions. Consider looking at gold not only as a short-term opportunity but also as part of a long-term strategy for wealth preservation.
Time.news Editor: Thank you, Heng, for sharing your valuable insights on the gold market. It’s certainly an exciting time for investors. We appreciate your time today.
Heng Kun How: Thank you! It was a pleasure discussing these important topics with you.