Gold prices have surged, reaching a high above $US5400 an ounce, driven by growing expectations of monetary easing and a move away from sovereign bonds and currencies. Bullion rose as much as 4.6 per cent as traders speculate that the new monetary chief at the Federal Reserve may favour more accommodative policies later in the year. This is occurring despite recent actions from current Fed officials, who left interest rates unchanged and suggested a cautious approach to future adjustments following their meeting on Wednesday (Thursday AEDT).
Market analysts believe that speculation extends beyond the current Fed chair. “People are looking beyond Powell and thinking the next chair may be significantly more dovish,” commented Bart Melek, global head of commodity strategy at TD Securities. He added, “The choice of Fed chair will be a critical determinant [of] how gold performs this year.” BlackRock’s Rick Rieder has emerged as a potential frontrunner for the position.
Rieder, a Wall Street veteran, is perceived to bring a market-focused perspective to the Fed. In September, he advocated for a more aggressive half-point rate cut, differing from the Fed’s preference for smaller 25-basis-point increments. He has also expressed reservations about the central bank’s forward guidance on future rate moves. A lower interest rate environment typically benefits precious metals like gold, which do not offer interest payments.
According to Suki Cooper, global head of commodities research at Standard Chartered Plc, expectations of a more dovish and less independent Fed, combined with geopolitical risks, “are likely driving more rapid allocations to gold, led by retail investors.” She noted, “Barring short-term corrections, we continue to see further upside risk.” Gold closed up 4.6 per cent at $US5417.21 an ounce at 5pm in New York, while silver rose 4.1 per cent to $US116.70.
