Gold prices rise to record high: 3 reasons why

Gold prices soared to all-time high on Wednesday, July 17. Spot gold climbed 0.2% to $2,473.87 per ounce as of 0250 GMT, hitting a record peak of $2,482.29.

US gold futures rose 0.3% to $2,475.80, according to news agency Reuters.

In India, the price for 24 karat gold reached ₹74,030 per 10 grams.

Several factors have contributed to this surge in gold prices.

Expectations of a US interest rate cut

The primary driver behind the surge in gold prices is the anticipation of a US interest rate cut in September.

Recent comments from Federal Reserve officials have fueled these expectations, leading to a heightened interest in gold.

“Gold reached a new high watermark as investors position for the arrival of a lower interest rate environment. The $2,500 range is the next immediate target, though if the current momentum can be sustained, we could be looking at prices further north from here before year-end,” Tim Waterer, KCM Trade’s chief market analyst, was quoted as saying in the Reuters report.

Markets are expecting a rate cut of at least 25 basis points by the Federal Reserve at its September meeting.

The allure of non-yielding bullion tends to increase when interest rates are lowered because the opportunity cost of holding gold decreases.

Investor sentiment and market positioning

Investor sentiment has played a significant role in the recent spike in gold prices.

The current market positioning reflects a strong bullish outlook on gold.

Matt Simpson, City Index’s senior analyst, commented, “If gold prices retrace, $2,450 near its previous record high seems like a tempting level for bulls to reload for its next leg higher.”

This sentiment indicates that investors are prepared to buy more gold if prices dip slightly, reinforcing the overall upward trend.

Geopolitical tensions and Chinese demand

Geopolitical tensions and strong demand from China, the world’s top consumer of gold, have also contributed to the rise in prices.

Despite pausing official gold purchases in May and June, China still has a significant appetite for gold.

According to a policy insider, industry experts, and data, China’s bullion holdings remain low as a share of reserves, and ongoing geopolitical tensions are likely to sustain their demand.

Investment implications

The current scenario presents a favorable environment for gold investments.

The prospect of a US interest rate cut makes gold an attractive asset, especially given its status as a safe haven during economic uncertainty.

Investors are positioning themselves to take advantage of potential further increases in gold prices, with the $2,500 range as the next immediate target.

If favorable US Consumer Price Index (CPI) prints materialize, making the Federal Reserve more dovish on rates, gold prices could rise even higher before the year ends, experts say.