Gold Prices: Gold surged to a record high fueled by indications that the Federal Reserve is nearing a cut in interest rates, alongside geopolitical tensions and strong demand from China.

Bullion reached as high as $2,265.73 an ounce on Monday, marking a 1.6% increase from Thursday’s close, following a series of recent peaks.

Data released on Friday, showing a cooling trend in the Fed’s preferred inflation gauge, the core personal consumption expenditures index, further supports the case for reducing borrowing costs, although the central bank has maintained a cautious stance.

A multitude of positive factors, including the potential for monetary easing by major central banks and heightened geopolitical tensions in regions like the Middle East and Ukraine, have propelled bullion prices up by approximately 14% since mid-February. Additionally, strong purchasing by central banks, particularly in China, alongside increased buying by consumers amid ongoing economic challenges in Asia’s largest economy, have contributed to the rally.

Fed Chair Jerome Powell, commenting on the inflation figures, stated that they were largely in line with expectations and indicated no rush to cut rates. Investors are eagerly awaiting further insights into the US economy and central bank policy with the upcoming release of monthly payrolls data, expected to show an increase of at least 200,000 for a fourth consecutive month.

Swaps markets are currently pricing in a 61% chance of a Fed rate cut in June, which typically benefits gold as it does not yield interest. Warren Patterson, head of commodities strategy at ING Groep NV, noted that inflation data and Powell’s comments have further boosted gold, with growing market conviction that the Fed will begin rate cuts in June. However, he cautioned that a stronger-than-expected US jobs report could trigger a short-term pullback in gold prices.

Chinese demand

Spot gold rose 0.9% to $2,248.96 an ounce in New York trading, following a 3% increase last week. Despite its positive prospects, gold’s ascent has not resonated strongly with investors preferring exposure through exchange-traded funds, as worldwide holdings in bullion-backed ETFs declined by over 100 tons in the first quarter, hitting the lowest level since 2019