Gold prices surge to highest level since mid‑May amidst rate cut talks

Gold has reached its highest price since mid-May, and according to experts, the price of the precious metal can still rise. The "short-term" reasons include a potential interest rate cut in the US. In the long term, gold remains desirable for central banks and powers such as China.

The price of gold continues to rise, reaching $2,432 per ounce on Tuesday, the highest level since mid-May. Market experts predict that favorable economic conditions and expectations regarding interest rate cuts could push the precious metal's price to new record levels shortly.

Carsten Fritsch from Commerzbank, quoted by Kitco News, expresses optimism about the possibility of gold reaching a new record level in the coming week. He notes that the expected rate cut in September is almost fully priced in, and another cut may occur by the end of the year. Fritsch predicts that "the price of gold may return to its record level from May in the coming days."

Analysts also point to the upcoming meeting of the European Central Bank, which will take place on Thursday. Although markets expect the current interest rates to be maintained after the June cut, there is speculation about whether the ECB will signal the possibility of another cut in September.

A potential "dovish" stance by the ECB could weaken the euro against the US dollar, posing some challenges for gold. However, experts emphasize that the overall trend of falling global interest rates generally favors gold.

Analysts point to several key factors supporting the current upward trend in gold prices. Among them are softer comments from Federal Reserve Chairman Jerome Powell and lower-than-expected inflation data in the Consumer Price Index (CPI). During his testimony on Capitol Hill, Powell emphasized that the economy faces balanced risks, noting that "high inflation is not the only risk we face."

In a slightly broader context, Ole Hansen, head of Commodity Strategy at Saxo, spoke in June about the outlook for gold prices. According to him, strong retail demand in China is driven by the desire to invest money in a sector perceived as relatively resistant to economic problems and the real estate market crisis.

The expert also pointed to continued demand from central banks in the face of geopolitical uncertainty and de-dollarization and gold's ability to offer security and stability that other assets may not provide. The growing debt-to-GDP ratios in many countries, especially in the US, raise concerns about debt stability, which also favors gold's popularity.

In other words, the rising yield on US Treasury bonds does not necessarily hurt gold, as it may raise doubts about the overall level of debt and its sustainability. Additionally, attention is shifting from the negative effect of lower expectations for interest rate cuts to the support arising from persistent inflation.

Much will also depend on the stance of China, which stimulated the gold market since 2022 but temporarily halted purchases due to high price levels.