(BFM Bourse) – The barbarian relic has exceeded its record established last December.
The barbaric relic, as the economist John Maynard Keynes nicknamed it, has reached yet another historic high. The ounce of gold reached a new high of $2,141.79 during the day on Tuesday before falling slightly. Around 3 p.m., the ounce rose 0.6% to $2,127.4 according to Bloomberg data.
The previous record for an ounce of gold was set at $2,135.39 according to the economic and financial agency.
The ounce added more than $100 in the space of five sessions. A set of factors explains the progression of the precious metal.
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Geopolitics and rate cuts
First of all, gold is supported by the end of key rate hikes by major central banks. Even if the market has revised its expectations in recent weeks, investors still have a reference scenario of a rate cut from June by the American Federal Reserve (Fed), according to data from the FedWatch tool. of the CME Group.
However, the higher the interest rates, the less theoretically attractive gold is, all things being equal. Unlike stocks (with dividends) and bonds (with coupons), gold does not produce income. Its price is consequently hit by a rise in interest rates, because it then becomes less and less interesting to invest your money in gold rather than investing it.
“The yellow metal is traditionally negatively correlated with the level of interest rates. When they fall, all things being equal, the price of gold tends to increase,” explained the Comptoir national de l’or in December.
The persistence of geopolitical tensions, with the holding of numerous elections this year, also constitutes a supporting factor, underlining the safe-haven function of gold.
Bloomberg also points to a risk of correction on the stock markets, while the craze for technology stocks has led the major stock indices to surpass their records on multiple occasions.
A fragile increase?
However, the rally that gold is experiencing raises the question of the sustainability of the upward movement, while the tailwinds for the precious metal could well be fading.
“We think the upward movement is fragile,” Thu Lan Nguyen, head of commodities research at Commerzbank AG, told Bloomberg. “We would not be surprised to see a slight downward correction in the coming days due to profit-taking,” he adds.
Some specialists are starting to warn of ultimately very small rate cuts this year from the Fed. This is the case of the chief economist of the Apollo investment fund, Thorsten Slok. On Friday, the specialist judged that the Fed could very well not make any rate cuts this year.
His reasoning is as follows: the improvement in growth prospects for the American economy combined with financial conditions which have already eased since the end of last year are leading households to consume and businesses to invest and recruit which creates inflationary pressures. And should thus push the Fed to opt for the status quo.
“The strength and resistance of gold are surprising given the reassessment of the Fed’s expectations and the appreciation of the US dollar since the start of the year,” noted UBS in a recent note. The Swiss bank judges that this increase raises “many questions”, while according to it the precious metal should currently be falling and not increasing.
“Official sector purchases (Editor’s note: UBS here refers to central bank purchases via this term) and physical demand have certainly provided support, but mentioning only these factors is starting to become a somewhat lazy justification of the good performance of gold”, continues the Swiss establishment.
Julien Marion – ©2024 BFM Bourse