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Gold Prices Reach Record High Following Fed’s Rate Cut Outlook

(Bloomberg) — Gold prices soared past $2,200 an ounce for the first time ever as the Federal Reserve maintained its forecast for three rate cuts in the year ahead. This decision indicated that the Fed is not concerned about the recent rise in inflation rates.

The price of gold surged by as much as 1.6% to hit a new record of $2,220.89 per ounce in early trading, before moderating a portion of those gains. The increase in gold prices since mid-February has been supported by longstanding factors such as heightened geopolitical tensions and increased buying activity by central banks, particularly China. Despite the rapid rise in prices, there has not been a clear trigger for this surge.

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The recent rally in gold prices is partly driven by expectations of a more relaxed monetary policy in the US, as reiterated by the Fed’s announcement. Fed Chair Jerome Powell emphasized the need for more evidence of declining prices but stated that most likely, there will be rate cuts in the future.

Chris Weston, head of research at Pepperstone Group Ltd., commented, ÔÇ£The Fed’s announcement has given gold traders the green light to reenter the market. They are tolerant of current inflation levels and don’t see labor market strength as a hindrance.ÔÇØ

There is speculation surrounding the timing of the Fed’s anticipated policy reversal, which may have contributed to the recent surge in gold prices. Traders have increased their net long positions on gold, and it is expected that gold-backed exchange-traded funds will see a rise in their holdings once US interest rates actually start to decrease, according to UBS Group AG.

The Impact of Geopolitical Risks on Gold Prices

Geopolitical uncertainties are also driving up demand for gold as a safe-haven asset. Developments such as Russia’s advances in Ukraine, the ongoing Israel-Hamas conflict disrupting global shipping routes, and the forthcoming US presidential election are all factors fueling gold’s appeal.

Chinese buyers have played a significant role in supporting gold prices. In addition to the central bank’s purchases, individuals in China are buying coins, gold bars, and jewelry to protect their wealth amidst a turbulent property market and stock market losses.

As of 12:04 p.m. in Singapore, spot gold was up by 0.8% to $2,202.82 per ounce. The Bloomberg Dollar Spot Index declined by 0.2%, while silver, platinum, and palladium prices all experienced gains.

–With assistance from Jack Ryan.

For more information, read the latest report on Chinese buying trends influencing the gold market.

┬®2024 Bloomberg L.P.

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