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The recent surge in global uncertainties has heightened the allure of gold. In a historic milestone, gold prices have reached their peak at $2,126 per ounce, the first time since the inception of gold futures contracts in 1974. Notably, this surpasses the previous high recorded in December 2023. Gold has demonstrated positive returns in four out of the past five years.
What's particularly intriguing this time is the timing of this surge. The ascent happened just before Federal Reserve Chair Jerome Powell's scheduled speech at Congress, leading traders to anticipate hints of a potential reduction in the interest rate trajectory. Decreasing interest rates tend to favour gold prices as investors seek refuge from lower-yielding assets.
Market indicators such as the CME Group's FedWatch tool suggest a 70 percent likelihood of the Fed initiating rate cuts by June. The rapidity of this price escalation has also caught many off-guard, with gold experiencing a consecutive 2-week spike. This follows reports of a sustained downturn in the US manufacturing sector throughout February, coupled with a decline in US inflation, the value of the US dollar against major currencies, and treasury yields.
Gold prices have remained resilient amid high-interest scenarios, with central banks increasingly turning to the metal as part of their de-dollarization efforts. Analysts foresee further upward momentum in gold prices in the event of declining interest rates.
Projections vary among analysts, with the most conservative estimating a base price of $2,000 per ounce for gold in 2024, while the most optimistic set a target of $2,250.
The escalation of global uncertainties, including the rising conflicts in Russia and Ukraine, the Israel-Gaza situation reaching a critical juncture, and the assertive stance of the Houthis, coupled with the world's struggle to manage these crises, is exerting pressure on global economies and trade.
Also, the persistent slowdown in China, despite government intervention, adds to the prevailing uncertainty.
The biggest uncertainty is the election in the US, with the disruptive prospect of the return of Donald Trump, which can lead to increased volatility.
Amid diminishing visibility, investors are inclined to allocate their resources to assets proved to withstand turbulent times.
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Shishir Asthana
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