Gold prices surge past $2,000 per ounce on expectations of slower rate hikes

Gold prices surged to their highest levels since March 2022 and have largely remained above $2,000 per ounce over the past week as the precious metal benefited from optimism about the potential slowing of interest rate hikes amid signs of cooling inflation.

The London Bullion Metal Association gold price reached $2,037.33/oz on April 13, the highest level since it hit $2,056.10/oz in early March 2022, when Russia's war in Ukraine shook markets, data from S&P Global Market Intelligence showed.

The price breached the $2,000/oz mark for the first time in nearly a year on April 4 and remained around that level until April 10, when prices fell to $1,989.27/oz amid speculation that the US Federal Reserve might have room to further increase rates amid strong US jobs data.

But gold prices returned to above $2,000/oz on April 11 and continued to climb after the latest US consumer price index rose 0.1% month over month in March, below expectations of a 0.2% increase and down from a 0.4% rise in February. Year over year, the index increased 5%, the lowest year-over-year rise since May 2021.

"As inflation appears to be moderating in the US, many in the market are lowering their expectations regarding further interest rate rises by the Federal Reserve. This in turn is helping reduce the value of the US dollar, supporting commodity prices," said Jon Mills, an analyst at Morningstar.

"So perceptions of fewer interest rate rises by the Federal Reserve are likely also helping support gold prices," Mills said.

Gold prices started rising in March amid a flight to safety by investors following turmoil in the banking sector marked by the collapse of Silicon Valley Bank, as well as rising oil prices and a weakening US dollar.

"Given the current geopolitical and macroeconomic conditions coupled with a weakened US dollar, we anticipate the gold price will remain volatile but likely above $2,000/oz in the short-term," said Bjorn Goosen, an analyst at S&P Global Commodity Insights.

Some doubters

But other analysts believe that the gold price rally may not be sustained, as they expect the US Federal Reserve to continue hiking rates.

"Inflation is not slowing enough for gold to make that record run," Edward Moya, an analyst at online currency broker OANDA, said in an April 12 note. "This inflation report is promising for disinflation trends, but it doesn't mean the Fed's tightening work is done."

Analysts at German bank Commerzbank AG shared the same sentiment, saying that US rate cuts are unlikely in 2023 and gold prices would decline as a result.

"We do not therefore believe the recovery that has been seen since the beginning of the week to be sustainable," the analysts said in an April 12 note. "We expect the gold price to drop to roughly $1,900 per troy ounce by mid-year."

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