Gold price hits record high as bets on interest rates shift

Gold prices have hit a new high, while the value of Bitcoin has also surged.

The gains come as traders switch investing strategies, after nearly two years when rising interest rates helped fuel demand for US dollars and certain kinds of debt.

Investors now see a rising chance of rate cuts, which has reignited interest in other assets.

As Asian markets started trading on Monday, the price of gold jumped above $2,000, up 3%, before retreating.

Demand for dollars ticked up again later in the trading session on Monday, helping to push gold into retreat. Many investors holding gold were also taking advantage of the recent highs to sell, analysts said.

The gains have followed a weeks-long climb for the metal, which is seen as a “safe haven” and saw demand rise after the start of the Israel-Gaza war.

The latest rally was sparked by comments on Friday by the head of the US central bank, Jerome Powell.

The Federal Reserve upended financial markets last year as concerns about soaring inflation prompted it – and central banks around the world – to abruptly push interest rates to the highest levels in more than two decades to try to stabilise prices.

The moves forced many investors to re-think strategies, as investments considered less risky started to pay more.

But in a speech on Friday, Mr Powell said the Federal Reserve’s policy was now “well into restrictive territory” – meaning that rates were now high enough to cool the economy and stabilise prices, without any immediate need for further hikes.

Indeed, traders increasingly expect the bank to actually cut rates starting as soon as March 2024, though Mr Powell has sought to dampen those expectations.

“If signs of low interest rates become more evident, gold should continue to soar next year,” Alexander Zumpfe, a precious metals trader at Heraeus, told Reuters.

Financial markets in the US generally have rallied in recent months, as analysts grow more optimistic that the bank will be able to tame inflation without a significant hit to the American economy.

The price of Bitcoin also continues to recover after higher rates and a series of scandals in 2022 helped spark a plunge.

The most well-known digital asset momentarily surged past $42,000 – its highest level since April 2022. Its price has more than doubled since the start of the year.

Bitcoin is also hoping investors will start to move on, after US regulators have taken action against the heads of two of the biggest crypto trading firms, FTX and Binance.

US regulators are expected to approve new kinds of trading products linked to Bitcoin as early as next month.