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Gold prices hit an all-time high driven by falling real rates and a weaker US dollar

05 December 2023

The yellow metal surges to a new record high as investors seek a safe haven amid rising geopolitical tensions and central bank buying.

By Matthew Cook,

Reporter, Trustnet

The price of gold jumped nearly 2% to $2,111 (around £1,665) per ounce in Asian trading overnight, surpassing the previous record set in August 2020. Several factors have fuelled the rally, including heightened geopolitical risk, central bank buying, and expectations of lower interest rates, according to Hal Cook, senior investment analyst at Hargreaves Lansdown.

Investors are now betting on interest rate cuts from central banks in the US and UK as inflation is starting to ease. Another factor that has boosted the price of gold is a weaker US dollar. The US dollar has lost value against other currencies in recent weeks, making gold cheaper for investors using other currencies to buy gold.

“Real interest rate expectations (interest rates that account for inflation) have come down in recent weeks, following the market view that central banks in the US and UK have hit peak rates. Historically, the Gold price has moved in the opposite direction to real rates,” Cook said.

Geopolitical risk is also a factor that has boosted the price of gold. The conflict between Israel and Hamas in Gaza has increased the demand for gold as investors seek a safe haven for their assets.

Cook added: “The big question is whether this is a new break out in the gold price and the rally will continue, or whether the $2,000 figure will act as a technical limit, as it has done twice since mid-2020 (three times if you count the price of around $1,970 in March 2022).

“The peak earlier today was around the $2,100 mark, with the price as I type back down at $2,030. It’s hard to know for sure, but geopolitical risk and central bank buying are unlikely to go away anytime soon. Real rates and the dollar on the other hand are harder to be confident about.”

Investors could use gold as a hedge for when stock markets plunge, seeking solace in the yellow metal due to its global recognition as a store of value and high liquidity, which has long served as a sanctuary during economic uncertainty.

Cook added: “Gold’s a popular choice because it’s recognised globally as something of value. It’s also highly liquid, so you can buy and sell it quickly and cheaply. So, it can be a useful diversifier in a portfolio, particularly during periods of market stress.

“But it does come with risks. Prices can sometimes be volatile, affected by things like natural disasters, political tensions, or wider economic events like supply constraints.”

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