Key Takeaways:
- Gold futures for April settled at $2,126.30 per ounce, marking the highest level since the contract’s inception in 1974.
- When adjusted for inflation, gold reached an all-time high of about $3,200 in 1980, according to Peter Boockvar, chief investment officer at Bleakley Financial Group.
- Boockvar believes that gold still has potential upside and may eventually test or surpass the inflation-adjusted record.
Gold futures reached their highest level ever on Monday as traders speculated that the Federal Reserve would begin cutting interest rates in the latter half of the year.
The April gold contract surged by $30.60, or 1.46%, to settle at $2,126.30 per ounce, marking the highest level since the contract’s inception in 1974. This marks the second consecutive trading session in which gold has settled at a record high, following Friday’s all-time high close of $2,095.70 for the April contract.
The VanEck Gold Miners ETF (GDX) also saw gains, closing higher by 4.3% for the third consecutive trading day. Additionally, it traded above the 50-day moving average of $28.295 for the first time since January 12.
Peter Boockvar, the chief investment officer at Bleakley Financial Group, noted that when adjusted for inflation, gold reached an all-time high of approximately $3,200 in 1980. He suggested that there is still room for upside potential, and he expects gold to test its inflation-adjusted record.
Boockvar highlighted gold’s resilience despite high interest rates and a strong dollar, attributing it to significant purchases of gold by central banks worldwide. He noted that this trend accelerated following the U.S. and European Union’s seizure of $300 billion of Russia’s foreign exchange reserves in response to Moscow’s invasion of Ukraine.
Boockvar highlighted the potential concerns of countries like China and Saudi Arabia regarding their heavy reliance on U.S. Treasuries, suggesting that diversifying into alternative assets such as gold may become increasingly appealing.
According to Boockvar, gold’s upward trajectory is fueled by expectations of Federal Reserve interest rate cuts as inflation eases. Historically, when interest rates decline, gold prices tend to rise as investors seek safe-haven assets amid reduced attractiveness of bonds due to lower yields.
Bart Melek, TD Securities’ global head of commodity strategy, attributed gold’s recent gains to weaker-than-expected economic data, particularly in the manufacturing sector. He suggested that as economic growth slows and inflation moderates, the Fed may be prompted to take more decisive action in cutting interest rates.
Traders are speculating that the Fed will implement rate cuts as early as June, based on the CME Fed Watch Tool.
However, Melek cautioned that gold prices could encounter challenges if upcoming economic indicators, particularly those related to employment, surpass expectations. Stronger-than-anticipated job numbers could prompt a reversal in gold’s recent gains.
Year to date, gold has risen by 2.63%, reflecting its status as a popular investment amid economic uncertainty and inflationary pressures.