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(Bloomberg) — Gold jumped above $2,200 an ounce for the first time after the Federal Reserve maintained its outlook for three rate cuts this year, suggesting it is not alarmed by a recent spike in inflation. .
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Bullion rose as much as 1.6% to a record $2,220.89 an ounce in early trading, before paring about half of those gains. It has risen since mid-February, supported by long-standing supports, including increased geopolitical risks and buying by central banks, led by China. However, the rapid rise has surprised many experienced market observers, as there has been no clear catalyst.
The rally has been driven in part by expectations of looser monetary policy in the US, and that was reaffirmed by the Federal Reserve on Wednesday. Chairman Jerome Powell went on to highlight that officials would like to see more evidence that prices are falling, but “it’s still likely, in most people’s view, that we will achieve that confidence and there will be rate cuts,” he said.
“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.”
Speculation over the timing of the Federal Reserve’s long-awaited turnaround may have been the trigger for recent gains, with data showing traders increased their net long positions in gold last week to the most since 2019. The metal will still benefit more as U.S. interest rates actually decline as bullion-backed exchange-traded funds look likely to increase their holdings, according to UBS Group AG.
Read more: Chinese purchases set the stage for gold’s latest record
On the geopolitical front, there are a number of risks that increase gold’s appeal as a safe-haven asset. Russia appears to be gaining ground in its war in Ukraine, the conflict between Israel and Hamas continues unabated and has caused global shipping to be diverted, while the US presidential election at the end of the year could have huge consequences for markets. .
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 years-long housing crisis and losses in the country’s stock market.
Spot gold rose 0.8% to $2,202.82 an ounce at 12:04 pm in Singapore. The Bloomberg Dollar Spot Index fell 0.2%. Silver, platinum and palladium rose.
–With the help of Jack Ryan.
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