By Anushree Mukherjee
Gold prices skyrocketed above the $2,600 mark on Friday, marking a historic milestone driven by expectations of further U.S. interest rate cuts and escalating tensions in the Middle East.
The precious metal was up 1.3% at $2,620.63 per ounce by 1:43 p.m. ET (1743 GMT), while U.S. gold settled 1.2% higher at $2,646.20.
This surge in gold prices was fueled by the Federal Reserve's aggressive easing cycle, which began with a half-percentage-point reduction on Wednesday. The move has increased the attractiveness of gold as it does not pay any interest.
Gold prices have surged by 27% in 2024, marking their largest annual increase since 2010. Investors have been turning to gold as a safe-haven asset amidst uncertainties stemming from prolonged conflicts in the Middle East and other regions.
While the record rally is impressive, some analysts believe that a correction may be on the horizon.
"The source of this buying activity remains off our radar," said Daniel Ghali, commodity strategist at TD Securities. "ETF inflows are relatively marginal and Asian buyers are still on a buyers' strike, all signs of extreme positioning."
Despite eroding retail demand in top consumers China and India, some analysts believe that gold could experience additional upward spikes.
"Geopolitical risks, such as ongoing conflicts in Gaza, Ukraine, and elsewhere, will ensure to sustain gold's safe-haven demand," noted Forex.com analyst Fawad Razaqzada.
Continued weakness in the dollar, which makes gold cheaper for holders of other currencies, has also provided tailwinds for the precious metal.
Spot silver saw a 1.2% increase to $31.16, while platinum fell 1.1% to $978.50 and palladium dropped 0.5% to $1,074.84.
Analysis:
In summary, gold prices have surged above $2,600 due to a combination of factors including expectations of further U.S. interest rate cuts, escalating tensions in the Middle East, and the Federal Reserve's aggressive easing cycle. Investors have turned to gold as a safe-haven asset amidst global uncertainties, leading to a record rally in 2024. While some analysts predict a potential correction, geopolitical risks and weakness in the dollar could continue to support gold prices in the near future.