Gold scales record high on US Fed growth projections

Bullion has climbed 16 per cent this year amid a tariff war and geopolitical concerns

A goldsmith sells gold ornaments at a market in Peshawar, Pakistan. EPA

Gold rose to an all-time high of $3,051.96 on Wednesday night driven by the US Federal Reserve’s decision to hold interest rates unchanged for a second straight meeting and its projection of slower growth and higher inflation.

The precious metal was trading at $3,039.49 at 12.31pm UAE time on Thursday.

Bullion has climbed 16 per cent this year, extending last year’s strong performance. Investors usually flock to the yellow metal for a safe haven amid a gloomy outlook for both the US and global economy.

“While the market has drifted into technical overbought territory, we think the prevailing mood among investors remains cautious, which is likely to support the appetite for gold,” said Mark Haefele, chief investment officer at UBS Global Wealth Management.

“Gold remains a key portfolio hedge against near-term uncertainty, but also against episodic bouts of risk aversion further out.”

Fed chairman Jerome Powell acknowledged during a press conference on Wednesday the high degree of uncertainty from US President Donald Trump’s policy changes, though repeating that the central bank is not in a hurry to adjust borrowing costs.

The Federal Open Market Committee voted to keep the benchmark federal funds rate in a range of 4.25 per cent to 4.5 per cent.

The dollar and Treasury yields pushed lower after the FOMC rate decision. That helped lift bullion by as much as 0.6 per cent to a record $3,051.96, surpassing the previous peak hit on March 18.

The decision to hold rates steady comes as Mr Trump’s aggressive trade policies have placed the US economy under increasing pressure. His plans to levy tariffs on US trading partners have increased fears of an economic slowdown and caused a risk-off sentiment.

Continuing tension in the Middle East, as well as hostilities between Russia and Ukraine, have also led to a flight to safety.

Bullion typically performs well in an environment of geopolitical tension and tariff uncertainty.

The UAE is known as the “City of Gold” as it is a major re-export and trading hub for the precious metal, said Vijay Valecha, chief investment officer at Century Financial.

"Gold prices in the UAE have risen by nearly Dh20 in a matter of just 20 days. The price of 24 carat gold per gram surged to Dh367.50, while that of 22 carat per gram and 18 carat per gram rose to Dh340.25 and Dh326.25, respectively. UAE residents are increasingly viewing gold as a hedge against inflation and economic uncertainty," he said.

The imminent arrival of major festivals like Eid Al Fitr and Akshaya Trithiya are contributing to an increase in demand for gold jewelry. Akshaya Trithiya is traditionally among the busiest and most lucrative days for gold purchases in the UAE’s retail sector, according to Mr Valecha.

Although high prices could deter buyers on a tight budget, major gold shops are offering "compelling promotions" – including discounts on making charges, raffles and free gold coins on purchases above a given threshold – to entice buyers. Some have even pre-booked gold ornaments as they expect the rally to continue. This has enabled them to lock in a lower price as the rally gains momentum, he added.

"Several jewelry retailers have observed a growing trend of customers returning to exchange gold items purchased just three months ago. With gold prices having increased by over $400 per ounce over this period, consumers are seizing the opportunity to enhance or upgrade their holdings," Mr Valecha said.

The last time gold crossed a “thousand-dollar” threshold was when it broke through the $2,000 per ounce mark in August 2020 amid uncertainty surrounding the Covid-19 pandemic, wealth manager UBS said in a note on Wednesday.

With the $3,000 per ounce milestone reached, investors may be uncertain if gold’s appeal can extend further. However, geopolitical flashpoints, prospects of a faster pace of rate cuts from the Fed and gold inflows into exchange-traded funds (ETFs) are supporting bullion prices.

UBS retained its bullish stance on gold and revised up its target to $3,200 per ounce by June and through March 2026.