Gold tops $2,500 for the first time

Gold recently surged past $2,500 per ounce for the first time, driven by expectations that the Federal Reserve is edging closer to cutting interest rates. On Friday afternoon, spot gold broke through the $2,500 mark, surpassing its previous record set just last month. This increase followed disappointing U.S. housing data, which bolstered predictions of more rapid and substantial rate cuts from the Federal Reserve. Lower borrowing costs benefit gold since the metal doesn’t generate interest, making it more attractive than other assets.

Since last July, the Federal Reserve has maintained its key policy rate within a target range of 5.25% to 5.5%—the highest in over two decades. Economists anticipate a 50-basis point cut in September, followed by several smaller cuts that could reduce the federal funds rate to around 3.5% by next summer. This expectation of lower rates has been a major driver of gold’s more than 20% rise this year.

Additionally, geopolitical uncertainties, such as the ongoing war in Ukraine, conflicts in the Middle East, and tensions between the U.S. and China, have fueled demand for gold as a haven asset. The upcoming U.S. presidential election in November is also expected to keep increasing momentum to gold prices through the end of the year.

Central banks are projected to continue increasing their gold holdings, further supporting gold prices in the short to medium term. The combination of these factors suggests that gold’s recent gains may be sustained, with the metal remaining a key asset for investors seeking stability amidst global uncertainties.

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