Gold prices have reached a new all-time high, with the standard bar now valued at $1 million. This morning, spot gold surged past $2,525, eclipsing the previous peak set last Friday.
The price increase is attributed by some analysts to new import quotas issued by China’s central bank, while others link it to anticipated cuts in US interest rates, which have diminished the appeal of alternative assets like bonds and cash.
The rising demand for gold this year is driven by several factors, including increased purchases by central banks, notably the People’s Bank of China.
Analyst John Meyer at SP Angel noted that “Chinese exporters and traders have been rushing to purchase yuan and likely gold in anticipation of further weakening of the US dollar.” He observed that gold prices have also been supported by increased Chinese buying, especially after the People’s Bank of China restricted local government bond purchases and investor interest shifted towards gold amid issues in the Chinese property market. This trend reflects a growing preference for gold as a savings vehicle in China.
Gold ($2,525/oz) breaks record high as market waits for Jackson Hole for Fed guidance
- Prices hit $2,550/oz an ounce in Chicago last night with trading volumes averaging >$166bn ($163bn av in 2023) highlighting huge liquidity in gold trading.
- The hike in prices follow’s China’s PBoC issuance of new import quotas
- Chinese exporters and traders have been seen rushing to buy Yuan and probably gold in anticipation of further US dollar weakness
- The metal has also been buoyed by Chinese buying after the PBoC cracked down on local government bond buying.
- Troubles in the Chinese property has caused gold to become a preferred instrument for Individual savings in China.
- The PBoC will likely look to preserve stability amid a longer-term softening of the Yuan / Dollar rate to help exporters particularly with further tariffs on the horizon.
- Comments from the recent Politburo Third Plenum at end July emphasised a desire to hold the Yuan at a reasonable and balanced level.
- The market is waiting for comments from the Jackson Hole meeting where Fed governors are expected to comment on the potential for rate easing from September
- US Treasuries have also rallied, supporting gold prices.
- The 10 year has held below 3.9%, nearing the Yen panic lows.
- Traders are loading up on gold and bonds in advance of the Jackson Hole symposium.
- Some economists (Evercore) are speculating that Powell may hint towards a 50bp cut, with cuts of up to 200-250bp this year if NFP data shows further weakness.
- The market currently gives a 75% chance of a 25bp cut, with expectation of a 50bp cut sliding below 25%.
- This is a sharp repricing since the NFP print spooked investors over recession potential, when a 50bp cut was priced at 100% and commentators were calling for an intermeeting emergency cut.
Last month, senior officials in Beijing reiterated their aim to maintain the Chinese currency at a stable and balanced level.
The market is now closely watching the Jackson Hole symposium, where Federal Reserve officials are expected to discuss potential interest rate changes. Traders are “loading up on gold and bonds” in anticipation of possible signals from Fed Chair Jerome Powell about future rate cuts, according to Meyer.
Currently, there is a 75% probability that the Federal Reserve will implement a quarter-point rate cut, with the likelihood of a half-point cut dropping to below 25% from nearly 100% earlier this month, following US jobs data that suggested a potential recession.
Matt Britzman, senior equity analyst at Hargreaves Lansdown, attributed the recent surge in gold demand to growing expectations of impending US interest rate cuts, alongside central bank purchases, demand for portfolio hedges, and global uncertainty. This combination has fueled strong demand throughout the year.
Gold prices have climbed over 21% so far in 2024, with UBS projecting they could reach $2,600 per ounce by year-end.
