Gold prices at another record high after Fed chief’s comments; what’s driving the surge

Gold prices shot to another record high, crossing the $2,300 per ounce mark, following the US Federal Reserve’s fresh indication of rate cuts later this year. The spurt in the value of the yellow metal comes in the backdrop of a steep rally in prices since the start of this calendar year.

Gold briefly touched a peak of $2,304.96 per ounce during the early trading hours of April 4 in Singapore, before steadying at $2,299.25 an ounce at 9:12 a.m (local time).

While the prices have been soaring since the start of this week – when it breached the $2,200 per ounce mark – the latest surge was driven by Fed chief Jerome Powell’s comments at a media briefing on April 3. The US economic data suggests that it would likely be appropriate to reduce the lending rates “at some point this year”, he said.

Why are gold prices going up?

• Fed outlook: The US central bank, in its policy review meeting held last month, kept the benchmark rates unchanged in the range of 5.25%-5.5% but projected three likely rate cuts of 25 basis points (bps) each in calendar year 2024. A lower interest rate would translate into the release of higher liquidity in the economy, which in turn would further aid the gold prices, analysts said. The projection of reduced interest rates has boosted the gold buying sentiment among those looking at the yellow metal as medium to long-term investment, analysts added.

• Chinese demand: China, which is still recovering from the Covid-19 jolt to its economy, has seen a spike in gold purchases by its citizens, as well as the country’s central bank. The People’s Bank of China bought gold for the 16th consecutive month in February. It added around 390,000 troy ounces of the metal during the month, taking its overall holding to 72.58 million troy ounces. With the Fed and other central banks projecting rate cuts in the near future, gold is considered as a safer bet to support foreign reserves, economists explain.

• Geopolitical risks: The ongoing Russia-Ukraine conflict, with fears of its repercussions spreading to neighbouring parts of Europe, along with the escalating tensions in the Middle East have also boosted the gold prices, analysts said. The reason, they explain, is that gold is traditionally seen as a safe investment instrument in a jittery global market and acts as a hedge against inflation that may be stoked if the global supply chain is disrupted.

What are the current gold prices in India?

Gold is hovering around the ₹71,000-mark in India, rising sharply by around 9% since the start of this year. Since the start of the Covid-19 pandemic, the key metal has gained by a massive 69% in the Indian market. This is higher as compared to the 43% gain that the Sensex has recorded since April 2020. On April 3, gold settled at the following prices in the metro cities: ₹71,440 in New Delhi, ₹71,325 in Mumbai, ₹71,610 in Chennai, ₹71,535 in Bengaluru and ₹71,440 in Kolkata.