The price of gold has soared to an all-time high. This is a result of increased expectations that the Central Bank of the United States, the Federal Reserve (Fed), will lower interest rates this month. The prices of other precious metals, including silver, also surged.
On the 1st (local time), the price of gold futures on the New York Mercantile Exchange rose to $3,557.1 per ounce at one point. This is close to the all-time high recorded on April 22. It has increased over 34% since the beginning of the year. The London Metal Exchange (LME) benchmark price also reached a new all-time high of $3,475 per ounce. The price of silver futures also surpassed $40 per ounce, the first time since September 2011.
Expectations are dominant in the market that the Fed will lower interest rates at the Federal Open Market Committee (FOMC) meeting scheduled for the 17th. Jerome Powell, the Chair of the Fed, suggested the possibility of loosening monetary policy during a speech in Jackson Hole in August, and the recently released Personal Consumption Expenditures (PCE) price index matched market expectations, fueling hopes for a rate cut. Gold, as an asset that does not pay interest, becomes more attractive for investment compared to other assets like the dollar when interest rates decrease.
The overt pressure from U.S. President Donald Trump on the Fed also contributed to the rise in gold prices. President Trump recently attempted to dismiss Fed board member Lisa Cook. The market interpreted this action as undermining the independence of the Central Bank. As trust in the U.S. national system wavered, investors flocked to gold, a representative safe asset. Helen Amos, a commodity analyst at BMO, noted, "The market is fundamentally concerned not only about the Fed but the entire U.S. administrative system," and that this situation is a positive signal for the safe asset gold.
Uncertainty surrounding the trade policies of the Trump administration remains. Recently, a U.S. appeals court ruled that a significant portion of the tariffs imposed by President Trump is illegal. This ruling influenced a decrease in the dollar's value and pushed up gold prices.
There are also analyses suggesting that the recent surge in gold prices signals the beginning of a significant additional rise. Over the past four months, gold prices had been stuck in a range between $3,300 and $3,400 per ounce. During this period, the real yield on U.S. 10-year government bonds exceeded 2%, and the dollar's value rose to its highest level in decades, creating an unfavorable environment for gold prices. However, central banks around the world have been purchasing gold in large quantities to reduce their dependence on the dollar, maintaining steady demand. According to The Wall Street Journal (WSJ), global central banks bought a net total of over 3,600 tons of gold from the first quarter of 2022 to the second quarter of this year.
The Canadian investment analysis firm Rosenberg Research analyzed, "So far, central bank purchases and geopolitical uncertainties have driven gold prices; now it will be the turn of traditional upward dynamics such as interest rate cuts and a weaker dollar." The firm predicted that if the Fed ultimately lowers interest rates to 3% and the value of the dollar returns to a reasonable level, gold prices could rise an additional $400 per ounce to exceed $3,800, excluding other variables. Furthermore, it added that "breaking through $4,000 per ounce could also be within reach."