Gold hits new high above $2,400 amid geopolitical tensions and economic uncertainty

Gold prices have soared past $2,400 per ounce, reaching their highest level since late May, when they closed at a record $2,426. 

According to renowned international economist Aldo Contreras, geopolitical tensions and economic indicators in the US are driving this surge.

Geopolitical tensions bolster gold’s safe-haven appeal

Geopolitical events, such as the ongoing conflict between Russia and Ukraine and turmoil in the Middle East, have solidified gold’s reputation as a secure asset, according to Contreras. 

Additionally, fears of potential recessions in industrialized countries, particularly Germany, have heightened interest in gold as a hedge against economic uncertainty.

US economic indicators suggest potential Fed rate cut

Recent US economic data point to a possible interest rate cut by the Federal Reserve. Headline inflation dropped to a one-year low of 3% in June, while the annual core inflation rate fell to a three-year low of 3.3%. 

Combined with signs of a weakening labor market, such as downward revisions in US payrolls, these indicators suggest that the US macroeconomic environment might meet the conditions for the Fed to begin a rate-cutting cycle.

Aldo Contreras on gold as a safe-haven asset

Gold has long been regarded as a critical asset for protection during periods of market volatility.

“When the stock market becomes volatile, investors instinctively flock to gold as a safe-haven asset,” Contreras told Invezz.

Over the past year, gold’s price has risen significantly, gaining 25.07%, including a 3.61% increase in the last month, and currently trading at $2,400 per ounce.

Despite a period of stagnation, gold has seen spectacular growth since late 2022, attracting investors seeking stability amidst uncertainty, says Contreras. 

He attributes the rise in gold prices to a complex interplay of factors beyond macroeconomic effects. Notably, the increasing trend of de-dollarization pursued by BRICS countries, especially Russia and China, has added to gold’s appeal as a protective asset. BRICS nations have begun trading in their own currencies, reinforcing gold’s status as a reliable store of wealth.

Monetary policy and gold’s rising appeal

The potential for interest rate reductions by central banks worldwide, including the Federal Reserve, has further increased gold’s attractiveness. 

Although the US interest rate currently stands at 5.5%, lower than expected, Federal Reserve Chair Jerome Powell’s cautious approach to rate cuts has shaped investor expectations. 

Concerns about inflation and interest rate forecasts in Europe have also underscored gold’s significance as a crucial safe-haven asset.

“The convergence of economic, geopolitical, and monetary policy issues highlights gold’s lasting appeal as a dependable asset for investors seeking stability and safety in unpredictable times,” says Contreras.

As geopolitical tensions and economic uncertainties persist, gold continues to shine as a safe-haven asset. The combination of potential Fed rate cuts, global de-dollarization trends, and ongoing conflicts has bolstered gold’s position, making it a valuable option for investors looking for stability in volatile markets.

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