Why Gold Will Keep Rallying on Lower Rates, Central Bank Demand

investing.com:

Gold staged a blinding comeback last week, surging to fresh all-time highs above $2,200 an ounce. The rally, which has added around 10% to gold’s value since mid-February, caught many market watchers off-guard. But for those of us who’ve stuck with the yellow metal through its ups and downs, the price action is the vindicating result of several powerful forces aligning in bullion’s favor.

At the heart of gold’s resurgence is the Federal Reserve’s signal that it may be ready to throw in the towel. Fed Chair Jerome Powell has made it clear that the central bank is on course to cut rates as many as three times in 2024, fueling hopes that the tight monetary policy of the past 18 months is nearing an end.

With rate cuts on the horizon, real yields have cooled, increasing the relative attractiveness of non-interest-bearing gold.

Traders have wasted little time pricing in the Fed’s dovish stance. Futures markets now see a 72% chance of a rate cut as soon as June, up from 65% before the Fed meeting. Against this backdrop, gold’s surge is, I believe, textbook price action.

There’s more to the rally than just lower rates and a weaker U.S. dollar. As many of you are aware, central bank demand for gold has been a powerful driver as more and more developing countries join the de-dollarization movement in response to Western sanctions on Russia.

China has led the charge here, consistently adding large amounts of gold to its reserves for the past 16 months straight. Overall central bank buying reached record highs in 2022 and has shown no signs of slowing, helping to offset the selling pressure caused by gold-backed ETFs.

Higher gold prices have significant implications for the luxury goods market, where the precious metal is a key