Gold hits record high on bets for March start to Fed rate cuts

Gold prices rallied to an all-time high on Friday after remarks from Federal Reserve Chair Jerome Powell increased traders’ confidence the U.S. central bank had completed its monetary policy tightening and could cut rates starting March.

Spot gold climbed 1.6% to $2,069.10 per ounce. Prices were 3.4% higher on the week, and earlier rose to $2,075.09 per ounce to beat the previous all-time high of $2,072.49 reached in 2020.

U.S. gold futures also settled 1.6% higher at a record peak of $2,089.7.

Those records, however, are in nominal terms only. On an inflation-adjusted basis, accounting for the depreciation of the dollar and the effect of higher prices, gold’s all-time was reached in early 1980 at what today would equal $3,452.40 an ounce.

Speaking at Spelman College in Atlanta, Powell said “the risks of under- and over-tightening are becoming more balanced,” but the Fed is not thinking about lowering rates right now.

“Gold bulls are focusing on Powell’s comment that [the current] rate is well into restrictive territory, which plays into the narrative that cuts will come sooner, pointedly ignoring his warning that it was premature to speculate on easing rates,” said Tai Wong, a New York-based independent metals trader.

Markets added to bets of a March start to rate cuts and an interest rate of under 4% by the end of next year. Fed funds today stand at 5.25%-5.50%.

Lower interest rates reduce the opportunity cost of holding zero yielding gold, and generally weaken the value of the dollar.

But, “prices may have entered overbought territory and gold has been known to price in monetary policy expectations prematurely over the past two years,” Standard Chartered analyst Suki Cooper said in a note.

Boosting bullion’s appeal, benchmark 10-year Treasury yields slipped to a 12-week low and the dollar ticked 0.3% lower.

“Gold has had a Santa Claus rally and I expect that to continue until the end of this year,” said Everett Millman, chief market analyst at Gainesville Coins.

Silver gained 0.9% to a more than six-month high at $25.47 per ounce, set for a third consecutive weekly rise.

Platinum rose 0.6% to $932.44 and palladium lost 0.3% to $1,004.92.

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