Gold Prices Surge to Record Highs
Gold prices hit USD $2,500 per ounce for the first time in mid-August, buoyed by expectations the United States was moving closer to cutting interest rates. Gold jumped just over 2 percent to USD $2,506.84 on August 16, according to Hargreaves Lansdowne data.
The increase in gold prices followed disappointing U.S. housing data that has reinforced bets of faster and deeper cuts from the Federal Reserve (Fed), ING said in a note.
A climate of falling interest rates makes alternative assets to gold, less appealing to investors.
Investor Concerns and Market Forecasts
A big question on investors’ minds is by how much the Fed will cut rates. While analysts overwhelmingly anticipate a rate cut in September, they are divided over whether it will be by 25 or 50 basis points. Gold has hit a series of record highs in U.S. dollars, in which it is denominated, since late in 2023.
The yellow metal had previously touched a record peak of $2,483.60 in July 2024. Gold is up more than 20 percent this year. Continuing geopolitical tensions in the Middle East and Ukraine, could trigger further buying of gold due to its attraction as a “safe haven” asset.
“(Gold) remains supported by geopolitical risks and anticipated Federal Reserve rate cuts amid heightened tensions involving Iran, Israel, and Ukraine,” derivatives platform Saxo Bank’s Strategy team said in August.
UK Market and Economic Indicators
UK gold savers focused on the pound sterling that was underpinned in mid-August by second quarter British GDP data that was in line with economists’ expectations.
The UK economy grew by 0.6% in the second quarter, following a 0.7% recovery in the first quarter, after a shallow recession in the second half of 2023. After the Bank of England cut rates by 25 basis points earlier in August, analysts are focused on the possibility of further UK rate cuts.
The jury is out over whether the UK will cut rates again in September, but the overall consensus appears to be for two more 25-basis points rate cuts this year. A widely held view is that the Bank of England is in no hurry to cut rates after the start in August.
Wage growth is outpacing inflation, indicating that real incomes are increasing. Any risk of a further boost to inflation, perhaps driven by wage settlements, could put the brakes on more UK rate cuts for the time being.
