Gold prices reached an all-time high, surpassing the $2200 mark, driven by the announcement from the US Federal Reserve that it would keep interest rates unchanged and maintain its forecast of at least three rate cuts throughout the year.
In India, the price of gold reached a historic peak of Rs 66,778 per 10 grams, reflecting the global trend.
This surge is due to the decline in the US dollar and bond yields following the Federal Reserve’s decision. When interest rates are lower, the opportunity cost of holding onto gold, which does not yield interest, decreases. Additionally, a weaker dollar makes gold more affordable for investors using other currencies.
Spot gold rose by 0.8 per cent to $2,203.84 per ounce as of the latest update, hitting an unprecedented high of $2,222.39 earlier in the trading session. US gold futures also surged by 2.1 per cent to $2,206.30.
The Federal Reserve’s decision to maintain interest rates came with the indication that it still anticipated reducing rates by three quarters of a percentage point by the end of 2024.
Despite recent spikes in inflation, Federal Reserve Chair Jerome Powell stated that the fundamental narrative of gradually easing price pressures in the United States remained unchanged.
Financial market analyst Kyle Rodda told Reuters that the current situation represented a “goldilocks scenario” for gold prices, where slightly higher inflation expectations coupled with lower nominal rates resulted in reduced real yields. He explained that despite a period of subdued sentiment in the market, the dovish stance of the Federal Reserve, coupled with a squeeze on existing short positions and momentum chasing, bolstered bullishness.
Traders in Fed funds futures are now pricing in a 75 per cent likelihood that the Federal Reserve will commence rate cuts in June, up from 59 per cent on the previous day, according to the CME Group’s FedWatch Tool.
The US dollar depreciated to a one-week low against its counterparts, while benchmark US 10-year Treasury yields also saw a decline.
Tim Waterer, chief market analyst at KCM Trade said that the surge in gold prices was due to Powell’s commitment to maintaining the possibility of three rate cuts throughout the year, which resulted in a decrease in bond yields and the US dollar.
Meanwhile, other precious metals also saw gains, with spot silver rising by 0.4 per cent to $25.70 per ounce, platinum increasing by 0.8 per cent to $914.25, and palladium climbing by 1.2 per cent to $1,034.
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