Gold prices are hitting record highs; what’s driving the surge?
- Expected interest rate cuts have contributed to the March rally
- Central banks have been buying gold at a record pace in recent years
- Even Costco has started selling gold
One kilogram gold bullion at the YLG Bullion International Co. headquarters in Bangkok, Thailand, on Friday, Dec. 22, 2023. Gold headed for a weekly gain after US price data came in cooler than forecast, reinforcing expectations for multiple interest rate cuts by the Federal Reserve next year. Photographer: Chalinee Thirasupa/Bloomberg via Getty Images
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(NewsNation) — Gold prices hit a record high this week, extending a March rally that has marked the best month for the precious metal in over a year.
Long seen as a hedge against economic uncertainty, gold has surged past $2,200 a troy ounce for the first time. The latest uptick comes after Fed officials signaled they anticipate three interest rate cuts this year, even amid sticky inflation.
Historically, higher interest rates are typically linked with a decline in gold since it has no yield, but that hasn’t been the case lately. Instead, gold prices have stayed resilient.
Much of that is because central banks have been on a gold-buying spree. In 2022 and 2023, central banks bought over 1,000 tonnes of gold — more than double their net purchases in 2021, according to the World Gold Council. The People’s Bank of China led the way last year, accounting for over 20% of central bank net purchases.
Those banks have been the “main driver” of recent gold price resilience, J.P. Morgan noted in a recent report. The U.S. response to the war in Ukraine helps explain the rise in demand.
“In some cases, nations that are not allied with the United States have begun to look to reduce their reserve mix away from dollars, as they perceive the risks of keeping these reserves vulnerable to sanctions,” J.P. Morgan managing director Stephen Jury wrote earlier this month.
Central banks are still buying up gold at a hot pace in 2024, but everyday investors have also shown an appetite.
American retail giant Costco has seen a gold rush of its own. The big-box store sells gold bars on its website, but they’re “typically gone within a few hours” of becoming available, company officials said on a recent earnings call. Walmart has also offered gold on its site.
With global tensions rising, a looming presidential election and interest rate cuts on the horizon, gold’s strength may continue this year. Surveys suggest Americans have become more bullish recently.
Last year, 26% of Americans thought gold was the best long-term investment, up from 15% in 2022, according to Gallup. By comparison, 18% of respondents said stocks were the best, down six points from the year before. Both those investments ranked behind real estate (34%).
Gold’s March rally has coincided with all-time highs in the stock market. The S&P 500 hit a record this week and gained 10.2% in the first quarter.