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Tuesday, June 18, 2024  
11 Dhul-Hijjah 1445  

Why gold prices reaching all-time highs?

Central banks regards gold as long-term store of value

Gold has been regarded as a popular commodity among people as the word prices reached $2,364 per ounce this week, increasing by 16.5%.

Gold is high in price due to certain investors expecting the Federal Reserve to reduce the interest rate. However, this upsurge has increased other factors, including central banks directed by China as they buy gold to lessen their dependence on gold. 

Central banks regard gold as a valuable commodity and helpful during economic challenges. 

“Central banks demanding gold is a sign of waning reliance on the dollar,” CEO Ulf Lindahl of Currency Research Associates said. 

Gold prices are high due to the hype in the market created by investors.

Lindahl stated that trend followers and others are jumping in to buy the gold; however, the trends ensure high prices in the long term.

The United Business System (UBS) identifies the anticipation of Fed rate cuts as the key factor driving positive sentiment towards gold, as it remains the primary catalyst for bullish expectations in the market.

The Federal Reserve System (FED) Chairman, Jerome Powell, marked inflation as a rough road, ensuring the FED’s 2% target. However, this rate reduces and seeks to rebalance the economy later. 

According to data released by the Department of Commerce last month, the Personal Consumption Expenditures (PCE) price index, also preferred as an inflation measure by the Federal Reserve, recorded a 2.5% increase in the 12 months ending in February, representing a 2.4% rise observed in January.

The PCE price index, excluding volatile food and energy components, increased by 0.3% on a monthly basis. In February, this increased by 0.3%, which is lower than the growth in January, which was 0.4%, indicating the fastest growth in one year. 

Data from CME Group indicates that 51% of investors anticipate a reduction of a quarter-point in June. However, the job growth data for March surpassed expectations, raising doubts about the necessity for multiple rate cuts considering the ongoing strength of the economy.

According to Wells Fargo’s estimate, Costco started offering gold bars for sale on their website in August, followed by silver coins in January. It is now believed that the company is selling approximately $200 million worth of gold and silver each month. 

In December, during an analyst briefing, Chief Financial Officer Richard Galanti revealed that Costco had already sold over $100 million worth of gold bars in the previous quarter. This indicates a significant demand for precious metals among Costco’s customer base.

According to Reuters, for the 17th consecutive month in March, the People’s Bank of China increased its gold holdings by purchasing an additional 160,000 ounces, resulting in a total of 72.74 million troy ounces of gold in reserves.

According to an April 9 UBS, the central bank might be inclined towards buying gold as a means to diversify their holdings away from the US dollar due to geopolitical problems. 

Central banks, including those in India and Turkey, are inclined towards filling their gold reserves, driving India’s GDP growth high.

As outlined by April 9 Capital Economics, Chinese investors are considering gold as an alternative due to the decline in property and equity prices over the past few years. 

Lindahl added that dollars are becoming unappealing for central banks to decline their reliance on the US dollar.

According to J.P. Morgan, the surge in gold prices since 2022 can be attributed to central bank purchases. It suggests that gold may be entering a robust phase, as the amount of gold purchased by central banks in 2022 exceeded the average annual purchases of the previous decade by more than twofold.

The US Treasury Secretary, Janet Yellen, visited China to examine the financial stability of US-China relations.

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