Key Points:
Gold (Symbol: XAUUSD) climbed past $2,430 per ounce on Monday, marking a new record. This surge was driven by increasing speculations of Federal Reserve interest rate cuts, strong central bank purchases, and rising safe-haven demand.
SEE: Gold experiencing sudden upswing on the VT Markets trading app
Last week, data showed signs of slowing US consumer inflation. Combined with stalling retail sales, this has given the Fed more leeway to initiate monetary easing. Although policymakers haven’t officially changed their hawkish stance, markets are already anticipating the first interest rate reductions this year. Lower interest rates tend to raise the appeal of non-bearing assets like gold.
This shares some similarities with the global financial crisis in 2008. Rate cuts by the US Fed led to a surge in gold prices. Investors flocked to gold as a safe haven, pushing XAUUSD from around $800 per ounce in early 2008 to over $1,200 by the end of 2009.
Rising geopolitical tensions, including conflicts between Israel and Hamas and the war in Ukraine, have also boosted gold prices. Historically, gold has been a go-to asset during times of geopolitical instability.
As with above, a similar pattern can be seen from the 1979 Iran hostage crisis, where gold surged as investors sought safety. XAUUSD rose from around $250 per ounce in 1978 to over $800 by early 1980.
Strong central bank buying, particularly by China, as it seeks to reduce its dependence on the USD, further supported the trend. Central banks globally have been diversifying their reserves away from the USD, and gold has been a preferred alternative.
The market is now closely watching several Fed officials who are due to speak later in the day. Their comments could provide further direction on the US monetary policy and its impact on XAUUSD. If the Fed signals a more Dovish stance, XAUUSD could see continued upward momentum. However, any Hawkish comments could temper this rally.
Related article: US stocks pulled back with Hawkish comments from Fed
At the same time, while focusing on trading strategies based on technical analysis, market participants should also keep an eye on geopolitical developments, as any escalation could further drive safe-haven demand for gold.
