Gold prices hit new record highwhich has reached the $2,599.92 per ounce on Wednesday, before slightly lowering their prices after the Federal Reserve meeting in which they were interest rates lowered by 50 points basis; the move may have been similar to that of the US stock market, which hit new records before closing lower, in a case of “Sell the News”, as a massive 50 basis point cut had been priced in by the market in the previous days.
Correlation with rates
It is not unheard of for gold to strengthen during periods of monetary policy easing: zero-yielding bullion tends to be a preferred investment in a lower interest rate environment; in other words, lower borrowing costs are good for gold since it pays no interest.
The role of geopolitics
The latest rally has also benefited from ongoing geopolitical tensions in the Middle East. Hezbollah devices exploded again in Lebanon on Wednesday, stoking tensions in a wider conflict after similar explosions by the group’s pagers the day before that also left civilians dead.
The trend of the year
Since the beginning of the year, the precious metal has updated one record after another, gaining about 25% and being one of the best performers among the major raw materials. In addition to expectations of a rate cut by the Federal Reserve and geopolitical tensions, strong buying by central banks and lately also inflows into ETFs are also playing a role, ING analysts note.
The Global Gold ETFs have seen inflows for four consecutive months, with all regions recording positive flows and Western funds leading the way in August. demand for gold by central banks strengthened in July despite price increases: Net purchases reported by central banks more than doubled to 37 tonnes in July, data from the World Gold Council show. That represents a 206% increase month-over-month and the highest monthly total since January, when central bank purchases totaled 45 tonnes. In 2023, central banks have added 1,037 tonnes of gold, the second-highest annual purchase in history, following a record 1,082 tonnes in 2022.
