MW Why gold prices look to smash more records
By Myra P. Saefong
Precious metal touches new all-time highs
Gold climbed sharply on Tuesday as bets for U.S. interest-rate cuts prompted prices to touch fresh record intraday highs, and some analysts touted long-term prospects for further gains in the precious metal.
"Like stocks and bonds, gold just wants to go higher - and for the same reason," said Adrian Ash, director of research at BullionVault. The Federal Reserve is "finally preparing to cut rates because it believes it's got inflation beat."
Expectations for Fed interest-rate cuts later this year have led to weakness in the dollar and Treasury yields, boosting the metal's investment appeal.
"Thanks largely to weakness in economic data, and falling inflationary pressures, bond yields are continuing to remain under pressure," said Fawad Razaqzada, market analyst at City Index and FOREX.com. That's helping to "boost the appeal of low- and zero-yielding assets, and thereby keeping the gold outlook positive."
In Tuesday dealings, the yield on the 10-year Treasury BX:TMUBMUSD10Y was at 4.186%, down from 4.231% on Monday, while the ICE U.S. Dollar index DXY traded up by 0.2% at 104.41, but was down around 1.4% month to date.
There is "no doubt that the recent surge in gold prices can be at least partially attributed to a declining dollar and falling bond yields, thanks to weaker-than-expected U.S. data and an unexpected drop to 3% in U.S. consumer inflation last week," said Razaqzada. "These factors have enhanced the attractiveness of assets with low or no interest returns" such as gold.
On Comex Tuesday, the August gold contract (GC00) (GCQ24) climbed $34.30, or 1.4%, to $2,463.20 an ounce, looking to top the record-high $2,438.50 settlement from May 20. Prices traded as high as $2,455.90, topping the precious record intraday high of $2,470.20, also from May 20, according to Dow Jones Market Data.
Strength in gold contributed to a rise in the SPDR Gold Shares GLD exchange-traded fund to a new all-time intraday high Tuesday, based on data going back to Nov. 18, 2004. It was up 1.6% at $227.45 in Tuesday dealings after touching a high at $227.98.
Gold prices had teased a fresh record-high settlement on Monday after the assassination attempt on former President Donald Trump likely "created political uncertainty," Edmund Moy, senior IRA strategist for precious-metals distributor U.S. Money Reserve, told MarketWatch in recent comments.
Read: How the Trump assassination attempt is helping lift gold prices toward record highs
Support from political uncertainty that day then gave way to two factors impacting gold: the anticipation of Federal Reserve Chair Jerome Powell's remarks on what the central bank is thinking before its meeting later this month, and the disappointing GDP numbers from China, said Moy, who's also a former director of the Treasury Department's United States Mint.
On Monday afternoon, however, Powell said he would not signal at what meeting the central bank might make the first cut to its benchmark interest rate.
"June's cooling inflation and job market may be enough impetus for the Fed to start cutting rates soon, which if the cuts start, will likely boost gold," said Moy. "And with new data showing China's economy continues to struggle, Chinese investors have few alternatives - but gold is one of them."
"Rising gold demand and limited gold supply usually equals higher gold prices," he said.
Still, if the Fed remains cautious and wants to see more supportive data before cutting rates, gold prices may see a "short-term negative impact," Moy said.
In the mid- to long-term period, however, "most of the factors that drive up gold prices haven't changed: eventual interest rate cuts, greater geopolitical instability, China's struggling economy, and central bank demand for gold," he said.
-Myra P. Saefong
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(END) Dow Jones Newswires
July 16, 2024 12:44 ET (16:44 GMT)
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