Gold busts through $US2300 with pathway to Fed rate cuts

Gold rose to another record, extending a weeks-long rally after US Federal Reserve chair Jerome Powell reiterated that it will likely be appropriate to begin lowering interest rates “at some point this year”.

Mr Powell said recent inflation figures — though higher than expected — didn’t “materially change” the overall picture, according to his speech overnight Wednesday at California’s Stanford University. He signalled policymakers will wait for clearer signs of lower inflation before cutting interest rates. Lower rates are generally positive for gold since it pays no interest.

Bullion rose as much as 0.9 per cent to a new all-time high of $US2301.21 an ounce.

While Mr Powell repeated the Fed’s wait-and-see approach, the US central bank’s rate-cutting path remains unchanged. That’s “very gold positive as it suggests that the Fed will cut significantly before the inflation target is reached,” said Bart Melek, global head of commodity strategy at TD Securities.

The precious metal has risen more than 10 per cent this year, setting a series of records along the way. While the expected pivot by the Fed is positive for non-interest-bearing gold, the sharp rally over the past month has been marked by often-outsized moves that lacked a clear catalyst to justify the gains, as investors have piled into the bullion market.

Persistent tensions in the Middle East and Ukraine have bolstered the precious metal’s role as a haven asset, while central bank buying supported prices at historically high levels during the past year, despite rising interest rates.

The latest data compiled by the World Gold Council shows central banks continued adding to their gold holdings in February, albeit at a slower pace than before. They bought a net 19 tonnes, marking the ninth straight month of growth.

Still, gold’s record run has yet to attract investors who favour exposure to the metal through physically backed exchange-traded funds. Worldwide holdings in such ETFs shrank by more than 100t year-to-date, hitting the lowest level since September 2019, according to a Bloomberg tally.

Bullion was up 0.9 per cent to settle at $US2300/oz in New York. Its 14-day relative-strength index was 83, above the 70-level that indicates to some investors prices may have risen too far and too fast. Silver climbed 4 per cent to close at $US27.18 an ounce, the highest since June 2021. Platinum and palladium rose.

Bloomberg