Gold tops $2,500 for the first time as global stock markets extend rebound rally

The precious metal, a hedge against inflation, is up nearly a quarter in 2024 and about 30% in the past 12 months

Traders on the floor of the New York Stock Exchange. Gold surged past $2,500 on Friday, driven by optimism for a Fed rate cut and strong economic data. AP

Gold rallied to an all-time high on Friday, topping $2,500 for the first time, as optimism grew for a much-anticipated Federal Reserve interest rate cut in September, underpinned by positive US economic data that also helped extend a global stock market rally.

The precious metal soared to a record $2,509.41 per ounce, as investors flocked to the commodity amid geopolitical tensions, particularly in the Middle East. It gained more than 2 per cent to settle at $2,508.18, according to Goldprice.org.

Gold is now up nearly 24 per cent year-to-date and about 30 per cent in the past 12 months.

The safe-haven commodity is considered a hedge against inflation and market volatility, as it increases in value when the purchasing power of the dollar decreases.

Analysts' predictions that gold's ascension to its new price ceiling came sooner than expected, especially as demand is being driven by economic uncertainties and investor sentiment, which can significantly impact demand for gold.

“Although it is never easy to forecast market moves, the present environment … where uncertainty is high and investors are increasingly seeking safe havens, gold becomes attractive, pushing the price up,” Daniel Jolliffe, investment director at UK financial services firm Quilter Cheviot, told The National.

In particular, geopolitical tensions – including the heightened Israel-Iran situation and the Russia-Ukraine war – are the “primary force” for gold, he added.

Furthermore, the underlying trend for gold remains bullish, which is discouraging bearish speculators to step in ahead of such a big and psychologically important level, said Fawad Razaqzada, a market analyst at City Index and Forex.com.

“There are [also] little fundamental justifications for short-selling gold. In fact, some would argue that gold remains undervalued given the big devaluation and loss of purchasing power fiat currencies have suffered across the world in recent years owing to high inflation, which is still rising in some places,” he told The National.

Investors are also keeping a keen eye on the Fed's meeting next month, where it is expected to finally slash interest rates after a years-long record streak of increasing them. The US central bank maintained its stance last week, setting the stage for a momentum-shifting decision in a few weeks.

That would further boost gold prices, as rate cuts typically weaken the greenback, Ole Hansen, head of commodities strategy at Danish lender Saxo Bank, told The National.

“As the dollar softens, gold becomes cheaper for investors holding other currencies, increasing global demand for the metal. Overall, Fed rate cuts are expected to provide significant support to gold prices in the near term,” he said.

Wall Street closes its best week in 2024

Global stock markets, meanwhile, continued their rebound run following a massive sell-off earlier this month, caused by then weak economic data and fears of a recession in the US, which have somewhat faded thanks to more upbeat reports this week.

US government reports on Thursday showed the world's largest economy is faring better than perceived. The number of Americans applying for unemployment benefits fell last week, with jobless claims declining by about 7,000 to 227,000, the Department of Labour reported.

US consumer spending, which accounts for about two thirds of the country's economy, rose 1 per cent month-on-month in June, the biggest rise since January 2023, the Department of Commerce said.

Both the jobs and retail data are further signs the US economy is performing well, despite high interest rates.

Confidence from consumers, whose willingness to spend has been reflected in the retail data, “may help calm fears about the US economy falling into recession”, said Samer Hasn, a senior market analyst at XS.com.

On Wall Street, the S&P 500, Dow Jones Industrial Average and Nasdaq Composite all settled 0.2 per cent higher, as stocks recouped big losses from two weeks ago. The benchmark S&P 500 and tech-heavy Nasdaq both posted their seventh straight daily gains.

That pushed the indices to their best weekly gains in 2024 and since October last year, as the S&P 500 rose 3.9 per cent, the Dow added 2.9 per cent and the Nasdaq climbed 5.3 per cent.

In Europe, London's FTSE 100 bucked the trend, retreating 0.4 per cent at the close, after a rise in the British pound hurt companies whose incomes come primarily from overseas.

The Paris CAC 40 rose 0.4 per cent and Frankfurt's DAX added 0.8 per cent.

Earlier in Asia, Tokyo's Nikkei soared 3.6 per cent, as waning expectations of a US recession calmed investor nerves in Japan, America's top trading partner.

Hong Kong's Hang Seng index also shot up, settling 1.9 per cent higher at the close as tech stocks provided a boost, while the Shanghai Composite inched up 0.1 per cent.

Oil prices, meanwhile, slid about 2 per cent on Friday, settling almost flat for the week, as concerns over the Chinese economy hit demand prospects despite positive US jobs and consumer data lifting investor sentiment.

Brent settled 1.68 per cent lower at $79.68 a barrel, while West Texas Intermediate closed down 1.93 per cent to $76.65 a barrel.