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Gold prices surged to a record high on Tuesday as growing prospects of a series of Federal Reserve interest rate cuts this year and a second Donald Trump presidency provided a twin boost to the precious metal.
Gold gained 1.7 per cent to touch $2,465 per troy ounce, eclipsing the previous record struck in May. The latest gains come after weaker than expected US inflation data last week heightened expectations of lower Fed borrowing costs, which tend to boost non-yielding assets such as gold.
The metal climbed further following the weekend’s assassination attempt on Trump, which boosted his odds of a second presidency. The former president’s tariff plans and tax-cutting agenda is expected to increase the US budget deficit and inflame geopolitical tensions, which could fuel longer-term inflationary pressures and burnish gold’s safe-haven appeal.
“It started with the softening in US inflation data, which helped to reinvigorate expectations for rate cuts,” said Suki Cooper, precious metals analyst at Standard Chartered. The attack on Trump “has helped to reignite the appetite to look for safe havens and inflation hedges”, she added.
The all-time high caps a 20-month rally for gold, which has seen it climb 50 per cent as central banks bought record volumes of bullion to reduce their dependence on the US dollar in their reserves.
Gold gained a further tailwind in October when conflict erupted in the Middle East and from voracious appetite for the metal this year from Chinese consumers, as local equities, the property market and currency markets have disappointed.
Nicky Shiels, head of metals strategy at MKS Pamp, a Swiss precious metals refinery and trader, said investors were nervous about the prospect of rising US inflation and budget deficits under a Trump administration.
Shiels added that investors fear the Fed’s independence could come into question under Trump, who has voiced his desire for lower interest rates.
Gold’s 6 per cent rise this month has also been driven by bets that the Fed will lower borrowing costs faster than previously expected. The yellow metal powered higher after the US jobs market showed signs of a slowdown at the start of the month, with last week’s faster than expected fall in inflation providing a further boost.
Markets are now pricing in two or three rate cuts by December, compared with just two last week.
The prospect of a Trump victory could incentivise further gold purchases by central banks despite high prices, as “an acrimonious relationship between the US and China” spurs them to continue to seek alternatives to the dollar, according to Bernard Dahdah, an analyst at French bank Natixis.
“I wouldn’t be surprised if $2,300 and above becomes the new normal,” he said.