Gold is surging as investors bet on slower Fed rate hikes

By Anna Cooban, CNN

Gold is shining once again, as investors bet that cooling inflation in the United States will slow the pace of Fed rate hikes and make the precious metal more attractive.

Gold futures were at an eight-month high, climbing 14% since late November to hit $1,882 per ounce on Wednesday.

Investors tend to flock to assets that offer regular returns, such as government bonds, when interest rates are rising. Gold prices slumped in April last year as the US Federal Reserve started to hike interest rates in a bid to tame runaway inflation.

But the market is increasingly expecting the Fed to temper US rate hikes as consumer prices increases slow, boosting demand for gold.

Despite the optimism among investors, the Fed has not indicated a shift in policy. Minutes from the central bank’s December meeting, released last week, stressed that “substantially more evidence” was required for it to “pivot” away from its path of further rate hikes.

Some countries are also beefing up gold reserves helping to push up prices. That effort has become easier in recent months as the value of the dollar has weakened, making it cheaper for countries outside of the United States to buy gold.

“We are seeing a lot of physical buying of gold from central banks. Not surprisingly, a lot of it is from Russia and China, countries that are keen to reduce their dependence on the US dollar,” Caroline Bain, chief commodities economist at Capital Economics, told CNN.

Safe haven

Investors also typically see gold as a safe haven during times of uncertainty.

Gold is often seen as a good hedge against inflation since it is a tangible, scarce asset that, in theory, holds its value.

During the coronavirus pandemic in August 2020, gold prices hit an all-time high of £2,072.

The metal “tends to do well in times of crisis,” Krishan Gopaul, senior markets analyst for the EMEA region at the World Gold Council, told CNN. He added that the risk of a global recession this year could be a factor drawing in investors.

Craig Erlam, senior market analyst at OANDA, echoed this view.

“This year the global economy is facing a serious slowdown, and in many countries a recession. That could make gold more appealing now that yields and the dollar are less of a negative factor,” he told CNN.

— Nicole Goodkind and Paul La Monica contributed reporting.

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