Gold Prices Reach Record High as Treasury Yields and Dollar Decline on Fed Rate Cut Expectations

According to FactSet, gold prices have surged to another record high, closing at $2,093.10 an ounce for the most actively traded February delivery on Comex. The yellow metal, which closed early Thursday at $2,085.10 an ounce, continues its upward trajectory, reaching new heights as Treasury yields and the dollar extend declines. Gold has had a stellar performance in 2023, rising more than 14%.

The drop in Treasury yields, with rates on the 10-year note and the 30-year bond falling to their lowest levels since July, has contributed to gold’s rally. The ICE U.S. Dollar Index, which measures the value of the dollar against a basket of six important rivals, decreased by 2.7% in December, pushing it into negative territory for 2023.

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Falling bond yields favour gold bulls, reducing the opportunity cost of holding nonyielding assets. Additionally, a weaker dollar makes commodities priced in the currency more attractive to users of other currencies. According to Marios Hadjikyriacos, senior investment analyst at XM, the recent decline in real yields and the dollar has coincided with geopolitical instability and central banks, particularly in China, diversifying their reserves through direct gold purchases.

As gold wraps up a robust year, its performance heading into 2024 will depend on economic developments and whether the Federal Reserve follows through with anticipated interest rate cuts. Investors are pricing in an 87% chance of a Fed rate cut by its March meeting, based on Fed-funds futures traders’ expectations, according to the CME FedWatch tool. The precious metal’s ability to sustain its momentum will be closely tied to these economic factors and central bank decisions.


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