Gold prices surged during Friday’s trading session (Sept. 20), with spot gold officially surpassing the crucial $2,600 per ounce mark for the first time in history. The Federal Reserve’s potential continued interest rate cuts and geopolitical tensions in the Middle East served as the direct catalysts for this breakthrough.
At the close of trading in New York, spot gold prices rose by $36.3 per ounce, or 1.4%, to settle at $2,622.4 per ounce. Converted at Vietcombank’s selling rate, this price is equivalent to approximately 78.2 million VND per tael, a million VND increase from yesterday’s morning session.
The Fed’s decision to cut rates by half a percentage point on Wednesday is fueling gold prices. As a non-interest-bearing asset, gold benefits from a low-interest-rate environment.
According to data from the FedWatch Tool on the CME trading platform, futures traders are wagering a 100% probability that the Fed will cut rates again in both the November and December meetings.
Additionally, global investors have been actively buying gold this year to hedge against prolonged geopolitical risks in the Middle East and elsewhere. Central banks’ trend of buying gold to diversify their foreign exchange reserves away from the US dollar has also significantly contributed to the upward trajectory of gold prices.
Regarding the Middle East, Israel declared on Friday that it had killed a senior commander and several other important figures of the Hezbollah militants in an airstrike on Beirut, Lebanon’s capital. This development heightens concerns about a widening war in the region, despite US President Joe Biden’s assertion that a ceasefire agreement for the Gaza Strip remains a realistic possibility.
Year-to-date, gold prices have risen by 26%, the largest increase in a year since 2010.
Some analysts suggest that this record-breaking rally may soon transition into a state of adjustment.
“Investors did buy gold to some extent after the Fed’s aggressive rate cut decision. However, gold ETF fund inflows remain relatively low, and Asian investors are generally staying on the sidelines,” remarked Daniel Ghali, a strategist at TD Securities. He believes that these are indications that the bullish bets on gold have become “overstretched.”
The record-high gold prices have dampened physical gold demand from small investors in China and India, the world’s top two gold consumers, according to Reuters.
In a report from Commerzbank, the sentiment is that this gold rally “cannot go on forever” as the Fed is likely to cut rates by just 0.25 percentage points in each of the next two meetings.
Contrarily, some analysts predict that gold prices could climb even higher. “Geopolitical risks, such as the conflicts in Gaza, Ukraine, and elsewhere, will sustain the demand for gold as a safe-haven asset,” stated Fawad Razaqzada, an analyst at Forex.com, in a report.
The weakening US dollar due to the Fed’s rate cuts is also a supportive factor for gold prices.
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