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Gold eased back on Thursday after the metal shattered a new record earlier by breaking past the $2,300 level, as investors weighed the Federal Reserve’s latest messaging on this year’s interest rate cuts.
Spot gold fell 0.4% to $2,289.25 per ounce by 9:30 a.m. ET, having hit as high as $2,304.09 early in the session. US gold futures were down 0.2% at $2,308.80 per ounce in New York.
Despite this setback, the momentum is still with gold, which has been on a blistering rally over recent weeks and gone on to hit multiple record highs.
Driving this rally were the market-wide expectations that the Fed will start cutting rates some time this year, which gained more traction after chair Jerome Powell’s message to policymakers on Wednesday.
Traders are currently pricing in about 59% chance that the Fed will cut rates in June, according to the CME FedWatch tool.
Gold also found support in heightened geopolitical risks, including in the Middle East and Ukraine, as well as central bank purchases.
Since October, bullion has risen by over 25% on the confluence of these supporting factors.
Bullion is attracting investors who seek a portfolio diversifier and hedge against uncertainty, according to Joni Teves, a precious metals strategist at UBS Group AG.
“The case for building strategic allocations is strong, in our view, given persistent geopolitical risks and the scope for higher volatility and macro uncertainty this year,” she said in a note to Bloomberg, citing the looming US presidential election as an example.
“Gold’s blistering rally may have further room to run in the medium term,” Singaporean bank OCBC echoed in a note to Reuters.
“Historical evidence since 2001 showed that gold strengthened when Fed rate hike cycle ended and continued to extend its bullish run when Fed rate cut cycle gets underway,” it added.
Still, gold’s upswing has left some market watchers puzzled, especially as real US rates remain elevated, something that’s typically a headwind for bullion.
“I definitely think if we continue like this, there has to be some sort of an air pocket, or we hit a correction,” said Kyle Rodda, senior market analyst at Capital.Com. “There doesn’t seem to be a particularly good, fundamental reason that is clear and available to everyone to pin the move on.”
OCBC also warned investors of the risk of pullback despite its bullish call.
(With files from Bloomberg and Reuters)
