Financial Diary – Santiago
He gold rose above US$2,200 ounce for the first time as investors became more confident about the Federal Reserve's path for rate cuts, increasing the appeal of non-interest-bearing bullion.
The precious metal rose as much as 1.6% to a record $2,220.89 in early trading, before paring those gains. Gold has risen more than 10% since mid-February as prospects of looser U.S. monetary policy sparked fresh bets by investors on the bullion.
While the speed of gold's rally took some market observers by surprise, the Federal Reserve appeared to reaffirm those bullish expectations on Wednesday. The US central bank maintained its outlook for three rate cuts this year, suggesting it is not alarmed by a recent spike in inflation.
“What we saw last night was really a green light for gold traders to come back,” said Chris Weston, head of research at Pepperstone Group Ltd. “The Federal Reserve has said that right now they are tolerant of the inflation that we have.” “As we have seen, they are tolerant that the strength of the labor market will not be the impediment.”
Gold's gains over the past five weeks have also been supported by long-standing supports, including increased geopolitical risks and buying by central banks, led by China.
Gold has been trading for months around the $2,000 mark, a level that was only breached for the first time in 2020 as the global pandemic raged. Even more unusual, prices have traded at such high levels despite very high real interest rates that are normally bad for gold, which pays no interest.
Chinese purchases have also supported prices. Besides the central bank, ordinary people have been stocking up on coins, gold bars and jewelry to safeguard their wealth from a real estate crisis and losses in the country's stock market.
At the same time, bullion's appeal as a safe-haven asset has been underpinned by geopolitical tensions, echoing its unprecedented run in the late 1970s. Russia's war in Ukraine, the conflict between Israel and Hamas and the impending US presidential election are increasing risks and contributing to bullish sentiment for gold.
