Gold Price Surges Past $2600 Per Ounce Following Major US Sell-Off

After the U.S. Federal Reserve (Fed) cut its benchmark interest rate, international gold prices have surpassed $2,600 per ounce, setting a new record high.

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U.S. spot gold traded at $2,620.63 per ounce (approximately 3,501,000 KRW) in New York on the 20th (local time), up 1.3% in the afternoon. After breaking the $2,600 per ounce mark for the first time following the Fed's rate cut on the 19th, gold prices briefly paused but have resumed their upward trend.

Reuters explained that the Fed's initiation of a 'big cut' (a 0.5 percentage point rate reduction) has increased gold's investment appeal. Gold, being a non-interest-bearing asset, typically gains attention when interest rates are lowered. This year's gold price increase of 27% is the highest since 2010.

Reuters also noted that investors have shown interest in gold as a safe haven asset to avoid uncertainties stemming from political conflicts in regions such as the Middle East. Pawaad Razakzada, an analyst at Forex.com, forecasted, "As geopolitical instability continues, demand for safe-haven assets like gold will be sustained."

Michael Hartnett of Bank of America (BoA) stated that bonds and gold serve as means to prepare for risks of recession or inflation resurgence. Gary Dugan, CEO of the Singapore CIO Office, said that ahead of the U.S. presidential election in November, concerns over fiscal deficits and escalating tensions in Ukraine and the Middle East will lead investors to buy more gold.

The weakening of the U.S. dollar, making gold cheaper to purchase in other currencies, was also cited as a positive factor. Goldman Sachs and UBS forecast gold prices to surpass $2,700 per ounce by early and mid-next year, respectively, while Citi expects $3,000 per ounce by mid-next year.

On the other hand, some have assessed the gold price rally as excessive. Daniel Ghali, a commodity strategist at TD Securities, analyzed, "While it is clear that there is still demand for gold purchases related to Fed rate cuts, considering the relatively modest inflows into exchange-traded funds (ETFs) and the continued halt in buying in Asia, this signals 'extreme positioning' (investors being overly concentrated on one side)."

Reuters reported that as gold prices showed record gains, retail demand in China and India has decreased. Commerzbank mentioned that since the Fed is expected to cut rates by only 0.25 percentage points in each of the remaining two Federal Open Market Committee (FOMC) meetings this year, the gold price rally will not continue indefinitely.

George Efstathopoulos, a portfolio manager at Fidelity Singapore, also noted that the current financial market has priced in rate cuts appropriate for a recession, but if rate outlooks change, gold prices could adjust accordingly. In a Reuters survey of 107 experts, 86 expected a total 0.5 percentage point cut within the year. The financial market is pricing in a 0.75 percentage point cut.

This content was produced with the assistance of AI translation services.