By Anushree Mukherjee
Gold prices soared above the $2,600 level on Friday, reaching a new record high fueled by expectations for further U.S. interest rate cuts and escalating tensions in the Middle East. The price of gold was up 1.3% at $2,620.63 per ounce, while U.S. gold settled 1.2% higher at $2,646.20.
The latest rally in gold was boosted by the Federal Reserve's decision to initiate an aggressive easing cycle with a half-percentage-point reduction, making gold more attractive as it does not pay interest. Gold prices have surged 27% in 2024, marking the largest annual increase since 2010, as investors seek to hedge uncertainties stemming from prolonged conflicts in the Middle East and other regions.
Despite the record rally, analysts believe that a correction could be on the horizon. Daniel Ghali, commodity strategist at TD Securities, noted that while the Fed's rate cut has sparked buying activity, the source of this activity remains unclear. Retail demand in key markets like China and India has been eroded by the rally, and some analysts expect the rally to taper off as the Fed is projected to make smaller rate cuts in the future.
However, geopolitical risks and continued weakness in the dollar could provide further support for gold prices. Analysts also pointed to the ongoing conflicts in Gaza, Ukraine, and other regions as factors that could sustain gold's safe-haven demand. In addition to gold, spot silver rose 1.2% to $31.16, while platinum and palladium prices experienced slight declines.
In conclusion, the surge in gold prices is driven by a combination of factors including the Federal Reserve's interest rate cuts, geopolitical tensions, and weakness in the dollar. While some analysts anticipate a potential correction in the future, ongoing uncertainties and geopolitical risks could continue to support gold prices in the near term.