KY
KEY POINTS
- Gold prices broke $2,600 per ounce for the first time due to Fed rate cuts and geopolitical tensions.
- The metal’s value has surged 27 percent in 2024, marking the biggest annual rise since 2010.
- Analysts caution that the rally may face a correction, but geopolitical risks could sustain demand.
Gold prices surged above $2,600 per ounce for the first time on Friday, continuing an unprecedented rally sparked by Federal Reserve interest rate cuts and escalating tensions in the Middle East.
Spot gold climbed 1.3 percent to $2,620.63 per ounce by 1:43 p.m. ET, while U.S. gold futures closed 1.2 percent higher at $2,646.20. According to Mining.com, the precious metal has seen its value increase by 27 percent in 2024, marking its largest annual rise since 2010.
This latest jump followed the Federal Reserve’s decision to initiate an aggressive rate-cutting cycle on Wednesday, reducing interest rates by half a percentage point. As gold does not generate interest, these cuts have increased its appeal among investors seeking alternatives.
Factors behind the surge
The surge in gold prices reflects a broader trend of investors seeking safe-haven assets amid prolonged geopolitical conflicts, including the ongoing tensions in the Middle East. Daniel Ghali, a commodity strategist at TD Securities, pointed to the Federal Reserve’s decision as a key factor driving buying activity.
“Clearly, there’s still some buying activity associated with the Fed’s decision to begin their easing cycle with a big cut,” Ghali said. However, he noted that the source of this buying activity remains unclear, given marginal ETF inflows and continued low demand from Asian buyers, signaling “extreme positioning” in the market.
Despite this impressive rally, some analysts warned that the price surge might not be sustainable. Commerzbank suggested that the market could face a correction soon, especially with the expectation of only modest 25 basis point rate cuts at the Fed’s upcoming meetings.
Potential for further spikes
While some expect a correction, other analysts believe that gold’s safe-haven status will continue to drive demand amid geopolitical risks. Fawad Razaqzada, an analyst at Forex.com, pointed out that the conflicts in Gaza, Ukraine, and other regions will likely sustain the metal’s appeal.
Additionally, continued weakness in the U.S. dollar has provided tailwinds for gold, making it more affordable for international buyers. However, retail demand in key markets such as China and India has been under pressure, with the record rally eroding consumer interest in these regions.
In other precious metals, spot silver gained 1.2 percent to $31.16 per ounce. Platinum dropped 1.1 percent to $978.50, while palladium decreased by 0.5 percent to $1,074.84.
