By Anushree Mukherjee
Gold prices skyrocketed above the $2,600 level on Friday, driven by expectations of further U.S. interest rate cuts and escalating tensions in the Middle East. The precious metal was up 1.3% at $2,620.63 per ounce by 1:43 p.m. ET (1743 GMT), while U.S. gold futures settled 1.2% higher at $2,646.20.
The recent rally in gold was fueled by the Federal Reserve’s decision to implement an aggressive easing cycle, marked by a half-percentage-point reduction. This move has increased the appeal of gold, which does not pay interest. Gold prices have surged 27% in 2024, the largest annual increase since 2010, as investors seek to hedge uncertainties arising from prolonged conflicts in the Middle East and other regions.
Analysts have suggested that the record rally in gold may be due for a correction. While the buying activity following the Fed’s rate cut remains strong, the source of this activity is not entirely clear. Retail demand for gold in major markets like China and India has weakened, signaling potential challenges ahead.
Despite expectations for smaller rate cuts at the Fed’s upcoming meetings, some analysts believe that gold could experience further upward movements. Geopolitical risks, such as conflicts in Gaza and Ukraine, are expected to sustain the safe-haven demand for gold. Additionally, the weakness in the U.S. dollar has made gold more affordable for holders of other currencies, providing further support for its price.
Spot silver also saw gains, rising 1.2% to $31.16, while platinum and palladium experienced minor declines. The outlook for gold remains uncertain, with factors like geopolitical tensions and monetary policy decisions likely to impact its future price movements.
Analysis:
The surge in gold prices above $2,600 has been driven by a combination of factors, including the Federal Reserve’s rate cut and escalating geopolitical tensions. Investors are turning to gold as a safe-haven asset amid uncertainties in global markets. While some analysts believe that a correction may be imminent, others expect further upward movements fueled by geopolitical risks and a weakening U.S. dollar. The future of gold prices will likely be influenced by a combination of economic indicators and geopolitical developments, making it a key asset to watch for investors seeking to diversify their portfolios and hedge against market volatility.
