"Gold Price Hits All-Time High as Safe-Haven Demand Surges Amid Rate Cut Speculations"

Gold prices once again set a new all-time high at the end of this week's trading session, successfully closing at the psychological level of US$2,200 per troy ounce. The continuous surge in gold prices has been driven by increasing safe-haven demand and bets on the Federal Reserve's interest rate cuts.

On Thursday's trading session (28/3/2024), the price of gold soared by 1.75% to reach US$2,232.38 per troy ounce. In intraday trading, gold prices briefly touched a new all-time high at US$2,234.99 per troy ounce.

Gold prices recorded a weekly increase of 3.15%.

The gold price reached its highest level in Thursday's trading session, marking its best month in over three years, fueled by expectations of U.S. interest rate cuts and robust safe-haven demand.

"Market participants are now adjusting their positions ahead of the holiday and increasing trading activity until the end of the month and quarter," said Daniel Ghali, a commodity strategist at TD Securities, to Reuters.

Gold could rise further if the market begins to anticipate a deeper Federal Reserve interest rate cutting cycle and has the potential to "sustain these high levels, but we also see signs of weakness in buying emerging in the near term," Ghali added.

"Gold prices also rose due to the fact that there are still significant geopolitical tensions globally, which may prompt investors to switch to gold as a neutral reserve asset," said Everett Millman, chief market analyst at Gainesville Coins, to Reuters.

Although there are some indications that inflation is running higher than policymakers' estimates, this does not explain the high valuation of gold at present, Millman added.

The release of the U.S. core personal consumption expenditure (PCE) price index report on Friday may help investors gauge the Fed's upcoming policy stance.

According to the FedWatch tool, market participants currently estimate a 64% chance of an interest rate cut in June.

Gold prices are highly sensitive to movements in U.S. interest rates. An increase in U.S. interest rates strengthens the U.S. dollar and U.S. Treasury yields. This condition is unfavorable for gold as a stronger dollar makes gold harder to buy, leading to decreased demand. Gold also does not offer a yield, so an increase in U.S. Treasury yields makes gold less attractive.

However, lower interest rates will weaken the U.S. dollar and U.S. Treasury yields, thereby reducing the opportunity cost of holding gold. Thus, gold becomes more attractive to hold.

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