Gold Prices Hit Record High as Investors Bet on US Rate Cuts and Watch World Conflicts

On Monday, the gold price continued its upward trajectory, marking the fifth consecutive day of gains and reaching a new record high beyond the $2,250 mark during the Asian trading session. The rise comes from the latest US Personal Consumption Expenditures (PCE) Price Index data released last Friday. The data showed a moderate increase in inflation for February, reinforcing expectations that the Federal Reserve (Fed) is poised to start reducing interest rates in June.

Such anticipation is a significant boon for gold, a non-yielding asset, making it more attractive to investors in the current economic climate. Further bolstering gold’s appeal are ongoing geopolitical tensions, including the continuing conflict between Russia and Ukraine and disturbances in the Middle East. These factors contribute to gold’s reputation as a safe-haven asset, drawing investors towards it amidst uncertainties.

Despite a generally risk-on market sentiment, which typically puts pressure on gold prices, and some resurgence in US Dollar buying, gold’s momentum remains robust. The metal’s breakthrough past the previous all-time high around the $2,223 level late last week has set a bullish tone for its market trajectory. Investors are now keenly awaiting further economic indicators, such as the US ISM Manufacturing PMI, while Friday’s upcoming monthly jobs report remains a focal point. Last Friday’s critical inflation data keeps the possibility of a June rate cut by the Federal Reserve open, further fueling the rally in gold prices.

On the inflation front, the US Bureau of Economic Analysis reported that the PCE Price Index saw a 0.3% rise in February, with the annual rate ticking up to 2.5% from 2.4%. The core PCE Price Index, excluding food and energy prices and closely watched by the Fed, increased by 2.8% year-over-year, slightly down from January’s revised rate of 2.9%. Fed Chair Jerome Powell’s comments following the data release indicated that the inflation figures aligned with the Fed’s expectations, affirming the likelihood of a shift in monetary policy soon.

Market anticipation for the Fed to commence rate cuts in June has grown, with the CME Group’s FedWatch Tool indicating around a 70% probability of such action at the Fed’s June meeting.In response to recent developments, Russia has intensified its assaults on Ukraine’s energy infrastructure and other critical facilities following Ukraine’s drone strikes on Russian oil assets. Additionally, the Israeli military’s actions in establishing zones in the Gaza Strip, where any approaching Palestinian may be considered a threat, have drawn international attention.

On a more positive note, recent data from China indicating the first expansion in business activity in the manufacturing sector in six months has injected some optimism into global risk sentiment. However, this, coupled with a modest uptick in the US Dollar, could limit gold’s gains as investors and traders closely monitor upcoming US economic reports for further direction.

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