Gold hits high of USD 2,483; Fed Rate Cut expectations, geopolitical tensions fuel rally

New Delhi [India], July 20 : After a brief pause in June, the gold market has resumed its upward trajectory with vigour. The price of gold, which opened in the low USD 2,300s in early July, quickly surpassed the USD 2,400 mark and achieved a high of USD 2,483 this Wednesday, according to Metals Focus report.
The recent gains in gold prices have been influenced by anticipation of a US Federal Reserve interest rate cut.
This anticipation has been fueled by an unexpected dip in US consumer prices last month, coupled with emerging signs of a slowing job market.
These developments have reinforced views that the disinflationary trend is resuming, positioning the Fed closer to implementing rate cuts.
Lower interest rates typically diminish the opportunity cost of holding non-yielding assets like gold, thus bolstering its appeal.
Additionally, the US dollar has slipped to a three-month low, further underpinning gold investment. The dollar's decline makes gold more affordable for international investors, thereby increasing demand. The geopolitical landscape has also played a role in the gold price surge.
The recent attempted assassination of former President Donald Trump has heightened concerns over political instability.
This volatility, combined with the prospect of Trump's potential return to the presidency, has added to the allure of gold as a safe-haven asset.
The broader fiscal and economic context also supports gold's strong performance. The US federal debt has drawn increasing scrutiny, and the ballooning fiscal deficit has intensified concerns about sustainability.
Speculation that Trump's tax-cutting and pro-trade tariff policies could exacerbate the deficit and inflation has further driven gold investment.
The expectation that the US will not make significant adjustments to spending and tax policies in the near future only reinforces gold's attractiveness.
Across the Atlantic, political uncertainty in France following its snap election has prolonged the risk of further delays in fiscal consolidation, adding to the global investment climate's complexity and gold's appeal.
Sentiment among professional investors remains notably bullish. The fear of missing out has led to aggressive buying of price corrections, effectively raising the floor for gold prices.
Investors holding long positions have been reluctant to liquidate, even as prices reach new highs. This sentiment is evident in the net inflows into various gold investment products, contrasting with the variability observed in 2023 and early 2024.
On CME futures, despite record prices, profit-taking has been limited, and short positions on gold have remained subdued. Managed money positions have stayed near four-year highs, reflecting continued confidence in gold's potential.
Gold Exchange-Traded Products (ETPs), which had experienced consecutive outflows for 12 months, have seen a turnaround with net inflows starting in May.
This recovery has been driven largely by inflows into European-listed products, which had previously seen significant outflows. North African ETP holdings have remained stable, while Asian products continue to attract fresh interest.
The official sector remains a major buyer of gold, though reported purchases have moderated from the exceptionally high levels seen in 2022-23.
Despite this slowdown, net purchases in absolute terms have remained robust, with countries like Turkey and Poland continuing their steady accumulation strategies.
This ongoing accumulation underscores the importance of gold in reserve portfolio diversification amidst elevated geopolitical uncertainties and mounting US debt.
Looking ahead, the factors driving gold's current performance are expected to persist through the rest of 2024 and into 2025.
Anticipated rate cuts by the Fed, coupled with persistent global uncertainties, including ongoing conflicts in the Middle East and Ukraine, and escalating trade tensions involving China, will likely support gold prices.
While a near-term pullback may occur as tactical players take profits or respond to equity market liquidations, the downside risk should be limited.