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The price of gold rose to a six-month high on Monday, buoyed by growing conviction among investors that the US Federal Reserve has finished raising interest rates, and a weaker dollar.
Spot gold prices rose 0.6 per cent to $2,014.55 per troy ounce, the highest level since mid-May. The move took the precious metal’s gains since hitting a seven-month low at the start of October to just over 10 per cent, and left it around 3 per cent below its all-time high reached in August 2020.
Gold’s ascent has been supported by a sliding dollar, which has declined about 3 per cent against a basket of six peers in November, meaning that buying the precious metal is cheaper for investors holding other currencies.
Soft economic data in the US has also strengthened expectations that interest rates will not rise any further this year and will be cut next year. Yields on rate-sensitive two-year Treasuries have fallen from 5.2 per cent — their highest level since 2006 — in mid-October to 4.94 per cent. Gold does not pay any income and therefore looks relatively less attractive when rates are high, but more attractive when rates fall.
“The US rate outlook is the key driver for gold,” said Ewa Manthey, commodities strategist at Dutch bank ING. “Lower rates are typically constructive for gold, because it doesn’t yield any interest.”
Manthey added that fears of an escalation in the war between Israel and Hamas had also contributed to the rise in the price of gold, which is often viewed as a safe haven asset. “Although the risk of the conflict in the Middle East seems to be contained, at least for now, that will keep being supportive for the gold price.”
Analysts said the yellow metal could test its all-time high of just below $2,075 per ounce by the end of 2023. That peak in August 2020 came when the coronavirus pandemic weighed on the dollar and investors were still looking to park cash in less risky assets.
ING forecasts that gold will remain at record highs in 2024 to average around $2,100 per ounce in the fourth quarter, above the previous record high.
Central banks continue to drive demand, having bought a record 1,136 tonnes of gold last year and 800 tonnes over the first three quarters of 2023, according to the World Gold Council, an industry group. The People’s Bank of China has led the way this year, acquiring 181 tonnes, followed by Poland, at 57 tonnes, and Turkey, with 39 tonnes.
Analysts said that helped support the price of gold when bond yields were rising earlier this year.
The raw metal has significantly outperformed the companies that bring it to market so far in 2023. The NYSE Arca Gold Miners index, which tracks a mix of small and large-capitalisation groups across the industry, has gained just 1 per cent since the start of the year, according to data from LSEG.
Miners have this year struggled to keep a lid on labour, fuel and materials costs, while also faced with higher borrowing costs.
Silver prices have rallied even faster than gold in recent days, jumping more than 4 per cent since last Thursday. “The fact that silver has led gold, which is such a rare thing, suggests to me that this is a speculatively driven hit on the market, driven by expectations of the Fed cutting rates,” said Ross Norman, chief executive of Metals Daily, a precious metals data provider.
Analysts expect demand for gold to remain strong for the rest of the year. “It’s a strong season for buying gold. We’ve got the Indian wedding season, Christmas and Chinese new year — so perhaps that’s given confidence to the bulls,” said Norman.
With additional reporting by William Langley in Hong Kong