Gold prices have surged to a new high, crossing $2,000, as traders adjust their investment strategies amid rising expectations of rate cuts. This shift comes after nearly two years of rising interest rates, which fuelled demand for US dollars and specific types of debt. Investors are now reassessing their portfolios with a growing likelihood of rate cuts, reigniting interest in alternative assets.
The recent gains in gold prices follow a weeks-long climb, driven by increased demand for the precious metal, often considered a “safe haven.” The conflict in Israel-Gaza initially boosted demand for gold, and the latest rally was sparked by comments from Jerome Powell, the head of the US central bank (Federal Reserve), on Friday.
Powell indicated that the Federal Reserve’s policy is now in “restrictive territory,” suggesting that interest rates are sufficiently high to cool the economy and stabilise prices, without an immediate need for further hikes. Traders are increasingly anticipating rate cuts starting as early as March 2024, although Powell has sought to temper those expectations.
The current dynamics suggest a renewed interest in gold, particularly if signs of low-interest rates become more evident. The precious metal is often seen as a hedge against inflation and economic uncertainty. The retreat in gold prices later on Monday was attributed to a rebound in demand for dollars and profit-taking by investors capitalising on recent highs.
In addition to gold, Bitcoin is experiencing a recovery, surpassing $42,000, its highest level since April 2022. The digital asset’s price has more than doubled since the beginning of the year. Bitcoin’s resurgence is partly attributed to the anticipation that US regulators will approve new trading products linked to Bitcoin in the coming months. This positive sentiment is also fuelled by the hope that investors will move past recent regulatory actions against major crypto trading firms, such as FTX and Binance.