Gold prices reached a record high on Tuesday due to a weaker dollar and increased buying by Western investors, leading to a surge in the precious metal’s value. The rally is fueled by speculation that the U.S. Federal Reserve will lower interest rates in September. Spot gold rose 0.7% to $2,522.25 per ounce, exceeding the previous record set on Friday. Additionally, London’s gold price benchmark hit an all-time high of $2,521.55 per ounce during a morning auction on Tuesday.
The dollar is trading near a seven-month low as traders anticipate interest rate cuts by the U.S. central bank. The market is awaiting comments from Federal Reserve Chair Jerome Powell, scheduled for Friday. Marcus Garvey, head of commodities strategy at Macquarie, noted that gold is influenced by expected cross-asset correlations, particularly from the foreign exchange side as opposed to interest rates at present. Garvey also highlighted that the surge in gold prices is primarily driven by Western investor buying.
Despite the record high in gold prices, the Chinese gold price arbitrage remains weak, with the Shanghai Futures Exchange price trading below the Comex price. This is due to decreased demand in China, the world’s largest gold consumer, as prices remain high. Gold has seen a price growth of 22% so far this year, marking its best performance since 2020. However, gold’s Relative Strength Index, currently at 67, suggests that it is approaching the “overbought” zone, starting at 70.
Garvey warned of potential downside risks in gold prices ahead of Powell’s speech, despite the positive structural backdrop for the gold market. While gold ETF inflows are still modest, discretionary positioning is relatively long, which could impact the market. On Monday, holdings of SPDR Gold Trust, the world’s largest gold-backed ETF, surged to their highest in seven months at 859 tons. In addition to gold, other metals also saw gains, with spot silver rising to $29.7 per ounce, platinum increasing to $963.55, and palladium up to $934.50.
In conclusion, the record high in gold prices is attributed to a combination of factors, including a weaker dollar, increased buying by Western investors, anticipation of interest rate cuts by the Federal Reserve, and decreased demand in China. While the market awaits comments from Federal Reserve Chair Jerome Powell, gold’s Relative Strength Index suggests it may be approaching the “overbought” zone. Despite potential downside risks, the gold market remains structurally favorable, with the world’s largest gold-backed ETF seeing a significant increase in holdings. Other metals such as silver, platinum, and palladium also experienced gains amid the surge in gold prices.
