”Expectations of a Fed pivot to cut rates likely drove the recent, sharp surge in gold. Now, geopolitical risks and concerns over lack of fiscal prudence from governments could support the demand for metals.”
- Gold prices have been rising amid expectations of Fed rate cuts and its safe-haven allure.
- Declining yields on US government bonds tend to boost the demand for non-yielding assets such as gold.
- Fundamentals point to continuing strength, but valuations are high, which could lead to some near term volatility.
Gold prices rose significantly since October, and touched an all-time high of $2,182.8/oz on 11 March. Falling yields on government bonds, slowing US inflation and safe-haven appeal of the metal likely supported this surge.
Higher geopolitical tensions among countries (US/China, US/Russia) heighten the risks around government and central bank reserves, if held in a foreign currency. This could lead to more demand for stable assets from individuals and from global banks such as the PBoC. From a long-term perspective, excessive government debt and governments spending beyond their earning capacity may create concerns around government-backed currencies. As a result, the metal, which is also traditionally seen as a store of value, attracted investor interest.
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