Record high for gold as trio of drivers converge

Gold rose to a record as indications the Federal Reserve is getting closer to cutting interest rates added impetus to a rally that’s also been driven by geopolitical tensions and robust Chinese demand.

Bullion jumped to as much as $2,265.73 an ounce on Monday, up 1.6% from Thursday’s close, after setting a series of peaks in recent sessions.

The Fed’s preferred gauge of underlying inflation — the core personal consumption expenditures index — cooled in February, data showed Friday, when many markets were closed. That adds to the case for a reduction in borrowing costs, although the central bank has been striking a cautious tone. 

A host of positive drivers have pushed up bullion by around 14% since the middle of February. The prospect of monetary easing by major central banks, and elevated tensions in the Middle East and Ukraine have underpinned the rally. There’s also been strong buying by central banks, particularly in China, while consumers there have been loading up on bullion amid ongoing problems in Asia’s largest economy.

After the inflation figures, Fed Chair Jerome Powell said the prints were “pretty much in line with our expectations,” and there wasn’t any rush to cut rates. Later this week, investors will get a further chance to gauge the outlook for the US economy and central bank policy, with monthly payrolls expected to increase by at least 200,000 for a fourth straight month.

Swaps markets are pricing in a 61% chance of a Fed cut in June, up from 57% on Thursday. Lower rates are typically positive for gold, which doesn’t pay interest.

“Inflation data, and Powell’s comments in particular, have provided a further boost to gold, with the market becoming increasingly convinced that the Fed will start to cut rates in June,” said Warren Patterson, head of commodities strategy at ING Groep NV. However, “it wouldn’t take much of a catalyst to see a pullback in the short term,” and that could be a stronger-than expected US jobs report, he said.

CHINESE DEMAND

Spot gold rose 1.4% to $2,261.14 an ounce as of 3:37 p.m. in Singapore, after climbing 3% last week. Its 14-day relative-strength index was near 79, above the 70 level that indicates to some investors prices may have risen too far and too fast. The Bloomberg Dollar Spot Index dipped 0.1%, while silver, platinum and palladium all traded higher.

Gold demand in China has been pronounced in recent quarters. The nation’s central bank has added substantial volumes of bullion to its reserves, boosting holdings in each of the past 16 months. In addition, gold-buying has been gaining in popularity among younger Chinese.

The metal’s positive prospects have been endorsed by a slew of leading banks. Among them, JPMorgan Chase & Co. said last month that the metal was its No. 1 pick in commodities markets, and the price may reach $2,500 an ounce this year. Goldman Sachs Group Inc. said it sees potential for $2,300, highlighting the benefits from a lower interest-rate environment.

Still, gold’s ascent has yet to strike a chord among investors who favor exposure to the metal through exchange-traded funds. Worldwide holdings in bullion-backed ETFs shrank by more than 100 tons in the first quarter, hitting the lowest level since 2019 in mid-March, before a small uptick, according to a Bloomberg tally.