Gold (COMEX: $GC=F) prices soared to fresh all-time highs on Monday, April 1, 2024, fueled by growing expectations that the Fed could cut interest rates as soon as June to combat stubbornly high inflation. The rally saw spot gold briefly top the $2,265 per ounce level before paring some gains to trade at $2,236.55 by mid-morning in New York, up 0.2% for the day, while U.S. gold futures climbed 0.8% to $2,256.90.
Its new record extended the precious metal’s blistering 2024 rise, with bullion now up over 9% year-to-date. It marks a remarkable run for the precious metal, which has seen relentless buying as investors seek a safe haven amid global economic uncertainty.
Fed Rate Cut Bets Drive the Rally
Market expectations for an imminent Fed rate cut are providing the primary fuel for gold’s ascent. Comments from Fed Chair Jerome Powell suggesting the latest U.S. inflation data was “along the lines of what we would like to see” have traders betting the central bank could kick off rate reductions at its June meeting.
“The view out there is that the Fed will likely start cutting rates significantly before the time we reach the 2% (inflation) target based on what we’ve seen on the PCE data,” said Bart Melek of TD Securities.
The CME FedWatch tool currently shows a 68% probability of a rate cut in June, up from 60% before the release of February’s core Personal Consumption Expenditures (PCE) Price Index data on Friday.
Gold’s Potent Appeal in Low-Rate Environment
Gold prices tend to benefit from a low interest rate environment, as it increases the metal’s appeal relative to other assets like bonds, which would offer weaker yields. With the Fed signaling a willingness to start slashing rates to combat inflation, investors have piled into bullion.
“I think it’s a really exciting moment in gold,” said Joseph Cavatoni, market strategist at the World Gold Council. “What’s really driving it is, I think, many market speculators really getting that confidence and comfort [in] the Fed cuts.”
Central Bank and Overseas Demand Provide Further Boost
In addition to Fed cut bets, the gold rally has been turbocharged by continued strong central bank and overseas demand, particularly from China. According to Cavatoni, the world’s central banks have been aggressive buyers as they seek to diversify reserve portfolios amid geopolitical risks and the U.S. dollar’s weakness.
“Really strong case for them to continue to buy … [but] let’s see if they continue to be as large and for as long,” Cavatoni stated.
Caesar Bryan, portfolio manager at Gabelli Funds, also highlighted strong Chinese appetite, noting private investors have been attracted to gold as the country’s real estate sector, general economy, stock market and currency have struggled.
Uncharted Territory Ahead?
With gold venturing into uncharted territory price-wise, analysts see room for further upside as long as Fed rate cut expectations remain elevated. The precious metal’s technical picture is incredibly bullish, with all major moving averages sloping higher.
“Central banks are starting to show their cards, and this surge in gold has been relentless,” Otavio Costa, a market analyst, posted on X. He added, “The race to improve the quality of their international reserves is just getting started.”
However, some cautioned the rally could face barriers if the Fed pushes back harder on imminent rate cut bets. Powell acknowledged the central bank does not need to rush cuts given the strong economy and job market.
“(Fed officials) will probably caution the market that they don’t necessarily have to get aggressive on cuts. There’s no guarantee that the U.S. Central bank will start cutting rates, and I think they’ll make that quite apparent and that may cause some reversals here,” warned Melek.
With gold mania showing no signs of decreasing, all eyes will be on key U.S. economic data this week, headed by Friday’s nonfarm payrolls report for March, that could further shape Fed rate expectations.
Gold Price Performance
Gold futures continued their relentless bull run on Monday, April 1st,2024, to trade at $2,254.30 Per ounce, a 0.71% increase as of writing. The precious metal’s ascent showed no signs of letting up, as intensifying hopes for an imminent Fed rate cut spurred another fresh record high above $2,265 earlier in the session.
With bullion powering through uncharted territory, the key $2,300 level is rapidly emerging as the next upside target for the white-hot commodity amid this liquidity-fueled asset of buying interest. The relentless bid underscores gold’s safe-haven appeal during periods of economic uncertainty.
Should You Consider Buying Gold Now?
With gold prices hitting fresh all-time highs above $2,265 an ounce, those betting on continued Fed rate cuts to combat inflation may view any dips as an opportunity to accumulate gold, given its potent appeal as a safe-haven asset and hedge against a low-interest rate environment.
However, the rally could face turbulence if the central bank pushes back harder against aggressive rate cut expectations. One’s outlook on the trajectory of Fed policy, inflation, and the overall economy will likely dictate whether chasing gold’s blistering uptrend is sensible. As always, prudent risk management through proper diversification and position-sizing is crucial when trading volatile commodities.
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