Did the Fed Spark Gold's ATH?

Gold touched an all-time high fuelled by fund purchases, as well as speculation surrounding a potential shift by the Federal Reserve – which have significantly contributed to a robust rally in the yellow metal.

• The precious metal has risen more than 4% since February 29th, driven by expectations for monetary easing from the Fed.

• Gold rose as much as 1.3% to $2,141.79 an ounce before paring gains, with Tuesday, March 5th high topping the previous record of $2,135.39 set three months ago.

The scale of the move somewhat surprised some market watchers, particularly since there has not been much of change in expectations for the Fed’s easing pivot, let alone other macroeconomic drivers during that period of time.

Recommended Read: Fed Officials Stress Data’s Role in Setting Cut Pace

Now, the rising risk of a stock market correction – flagged by weak U.S. manufacturing data on Friday – may have prompted some investors to shift from equities to gold.

Did you know? Gold has always been considered a safe-haven asset due to its low volatility. People tend to turn to the precious metal in times of market uncertainty.

Gold market players continue to monitor the Federal Reserve’s intentions, with market sentiment pricing in a rate cut in June.

Currently, Fed Fund Futures (FFF) imply a 69.2% probability for the bank to cut interest rates during their June meeting.

The rising expectations by market participants may have exerted downward pressure on the greenback at a fundamental level, consequently enabling the precious metal to take advantage of the dollar’s lack of activity and move higher, given their inverse correlation.

However, it is important to note that FFF expectations for a June rate cut were higher at 71.7% on Monday.

Why the slight decrease, you may ask? This decrease could be attributed to comments made by Atlanta Fed President Bostic, who stated that it would be “premature to claim victory against inflation”.

This, in turn, has raised questions on whether Bostic and other policymakers are considering three rate cuts this year, or defying market expectations by cutting less – or even not at all.

If other policymakers, specifically Chair Jerome Powell, reiterate these hawkish remarks – which is anticipated in his speech tomorrow – we may witness a strengthening dollar. This could weigh on Gold’s price given their inverse relationship with one another.

While the exact timing of the Fed’s potential shift remains unclear and uncertain, indications that it is approaching have bolstered gold prices since mid-February.

Lower interest rates usually work in gold’s favour, which does not yield any interest.