PXBT: Gold remains near record highs on the prospect of Fed rate cuts

· Why
have Gold prices risen to record highs?

· Federal
Reserve rate cut expectations

· Safe
haven demand amid geopolitical uncertainty

· Central
bank buying

· Trading
Gold with PXBT

Gold prices have been on a tear this year, rising for seven straight months.
The precious metal trades 21% higher year to date, reaching a record high of
$2531 while outperforming global stocks. The US SP500 is up 16% this year, the
Nikkei 225 has booked gains of 10%, and the EuroStoxx 50 has risen 6%. Gold has
also outperformed the most major currency pairs. Few markets have risen as fast
as Gold so far in 2024.

Why have Gold
prices risen to record highs?

Federal Reserve
rate cut expectations

One of the main reasons that gold prices have risen so sharply this year is
the expectation that the Federal Reserve will cut interest rates aggressively
as US inflation has cooled towards the central bank’s 2% target, and growth is
showing signs of slowing. Weak data has even raised concerns that the US could
be heading for a recession, and the Fed may have to cut rates more
aggressively.

Lower interest rates benefit gold prices for two main reasons. Firstly, gold
is non-yielding, meaning it doesn’t pay an income; therefore, demand for gold
increases as interest rates decrease. Put another way, gold prices often rise
when interest rates are lowered, and the opportunity cost of holding
non-yielding gold falls.

Secondly, the US dollar often declines when the Federal Reserve lowers US
interest rates. Since gold is priced in US dollars, the gold price and the USD
price are inversely correlated. When the USD falls, the price of Gold can rise,
and vice versa—a weaker USD can boost the price of Gold.

The market is pricing around 110 basis points of rate cuts throughout the
rest of the year, with further cuts expected in 2025, which could support
higher gold prices.

However, should central banks cut rates less than expected, this could limit
the upside in Gold and potentially pull the precious metal lower.

Safe haven demand
amid geopolitical uncertainty

Gold is also seen as a safe haven in times of geopolitical and economic
uncertainty. Geopolitical uncertainty has also been an important driver of gold
demand, helping the price to all-time highs. As a safe-haven asset, gold’s
price often increases during times of elevated geopolitical tensions and policy
uncertainty. Gold buying ramped up significantly following the breakup of the
war in Ukraine in 2022 and, more recently, with the start of the Israel—Gaza
war.

These geopolitical tensions are not expected to defuse anytime soon.
Instead, there are fears that the war in the Middle East could broaden to
include Iran-backed Hezbollah, which could fuel further safe-haven
demand.

Should geopolitical risk ease, Gold prices could slip lower amid safe haven
outflows.

Central bank
buying

Central banks have shown an ongoing commitment to buying and accumulating
gold. While the overall demand for central bank buying has eased as the gold
price has reached record highs, according to the World Gold Council, demand
remains buoyant. Evidence of central bank buying can be seen in July as global
central banks added 37 tonnes to official reserves, representing a 206%
month-on-month increase, the highest monthly total since January.

Central banks are still keen to accumulate gold despite the elevated price,
given its role as a store of value and its performance in times of crisis.
China has been a key buyer of gold and, according to reports, has around 20% of
its reserves in the precious metal. According to the World Gold Council, the
PBoC bought 224.9 tonnes of gold, more than it sold in 2023, equating to around
5% of all global gold demand. The buying continued this year as China reduced
its US dollar reserves. The actual size of China’s gold holding doesn’t stand
out compared to other central banks, and the WGC data puts it seventh among
major countries, behind Russia and the US, among others. This means that China
could continue to build its gold reserves to diversify, which could support the
higher gold price.

Trading Gold with
PXBT

There are many ways to benefit from changes in Gold prices, from buying
physical Gold to trading it through an online brokerage such as PXBT.

PXBT is a regulated Forex and CFD broker that offers a wide range of
Commodities, Currencies, and Indices to trade on the MT5 platform, including
Gold. It also offers low fees and ultra-fast execution. PXBT is committed to
delivering the latest brokerage infrastructure and deep expertise for traders
across the globe, with its industry-leading platform providing an intuitive
interface, charting options, and mobile trading.

Learn more about PXBT

Disclaimer: The information provided herein is for informational
purposes only and does not constitute personal recommendation or investment
advice. Past performance is not a reliable indicator of future results. The
financial products offered by the Company are complex and come with a high risk
of losing money rapidly due to leverage. These products may not be appropriate
for every investor. You should carefully assess whether you understand how
these leveraged products operate and whether you can tolerate the high risk of
losing your money. PXBT Trading Ltd does not serve clients from Restricted
Jurisdictions as listed on its website.

This article was written by FL Contributors at www.forexlive.com.