As expectations that the Central Bank will lower rates of interest continue to grow, the price of gold continues to surge, boosted by inflows into ETFs backed by gold. Data shows that collectively, about 17 metric tons of gold have been added to bullion-backed ETF holdings in the last week, underscoring resilient investor demand.
The precious metal saw its price rise by roughly 1.7% to hit $3650 an ounce last week. This movement is largely explained by gold’s tendency to appreciate in environments where interest rates are lower or expected to decline. The rally in precious metals isn’t limited to gold either, as silver also saw its price hit $42 per ounce, making it its highest price since 2011.
Latest figures demonstrate that consumer confidence declined this month to its weakest level since May, with expectations for inflation in the long-term rising for the second consecutive month. This fuels worries about price pressures and the labor market, with traders holding onto expectations that the Federal Reserve will reduce rates of interest this week.
An environment with lower interest rates will see gold’s value continue to appreciate, as reduced borrowing costs diminish the appeal of interest-bearing assets like bonds and savings accounts. When yields fall, investors often shift their capital into non-yielding safe-haven assets such as gold, which preserve value and offer protection against inflationary pressures. Additionally, lower rates tend to weaken the U.S. dollar, making gold cheaper for foreign buyers and further fueling demand.
The metal’s price has climbed almost 40% thus far into the year, ranking among the strongest-performing raw materials and outstripping other benchmarks like the S&P 500 Index. Gold’s rally has been driven primarily by geopolitical tensions and purchases from central banks.
UBS Group AG has increased its gold price outlook to $3,800 an ounce by year-end, pointing to stronger inflows into gold-backed ETFs, easing interest rates, and dollar depreciation. By mid-next year, the bank expects prices to hit $3,900.
According to some analysts, gold’s negative correlation with the greenback should encourage further investment, as traders view the metal as a hedge. They add that President Donald Trump’s push for lower rates is another supportive factor. All eyes now turn to this week’s Fed meeting, where the rate decision is expected to set the tone for gold and broader commodity markets heading into year-end.
Platinum has also seen its price exceed $1,400 per ounce. This price boost is welcome news to extraction companies like Platinum Group Metals Ltd. (NYSE American: PLG) (TSX: PTM) that could see their revenues grow.
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