Here's why gold prices could climb even higher from current record levels

• Gold prices hit a fresh record high — above $2,500 an ounce — on Friday.
• Gold prices have risen about 20% this year thanks to central bank buying and geopolitical and economic uncertainties.
• Investors are expecting gold prices to extend gains when the Fed cuts interest rates.

Gold prices have been on a tear, hitting a record high on Friday — and they could gain further.

The yellow metal has been boosted by a combination of factors, including active central bank buying, and has surged about 20% this year.

Prices have, in fact, been in an "uninterrupted rally" from a low of $1,810 an ounce in October, wrote Ole Hansen, the head of commodity strategy at Denmark's Saxo Bank, in a Monday note.

This means that a standard-size gold bar of about 400 troy ounces — like those featured in gold heist movies — now cost over $1 million each.

The spot gold price is just shy of $2,500 an ounce now, up about 21% so far this year.

One big factor driving the market's expectation for higher gold prices is a potential Federal Reserve interest rate cut, following slower-than-expected July inflation data and higher unemployment figures.

Investors will be scrutinizing Fed Chair Jerome Powell's keynote at the central bank's annual symposium at Jackson Hole, Wyoming, on Friday, for cues on what the central bank might do next.

Now, "the question now is how big will the rate cut be?" wrote Daniela Sabin Hathorn, a senior market analyst at Capital.com, in a Monday note.

If Powell does signal a larger rate cut — for example, a 50 basis point, or 0.5% percentage point, cut — it could feed into higher gold prices.

A fall in US interest rates typically depresses bond yields and the greenback, in turn driving investment into gold, which is internationally denominated in the dollar.

Furthermore, a larger rate cut would "allude to greater concerns about economic recession by the central bank," wrote Hathorn.

A key reason central banks cut rates is because they want to stimulate lending and in turn, economic activity.

As a time-tested store of value, gold prices would likely rise on fears of recession.

Geopolitical risks boost appetite for gold

Other than monetary policy, heightened geopolitical risks are also boosting the appeal of gold, a traditional safe haven.

Risks include the wars in Ukraine, the Middle East, and the November US presidential election, wrote Saxo Bank's Hansen.

The US presidential election is a cause for concern because both candidates are "prepared to spend money they haven't got, thereby lifting the US debt levels further," Hansen added.

In China, consumers are also snapping up gold to preserve value amid a depressed economic environment, an epic property crisis, and a weak currency.

"Continued central bank demand amid geopolitical uncertainty and de-dollarization, and not least gold's ability to offer a level of security and stability that other assets may not provide" would give support to the yellow metal, wrote Hansen.