Why the Price of Gold Just Hit an All-Time High

The price of gold reached a record high this week, peaking as bitcoin also notched its all-time high and shortly after the S&P 500 crossed 5,000 for the first time.

Spot gold was trading at $2,160 per troy ounce as of Thursday afternoon, up over 8% since mid-February and well above the previous record, achieved in December when gold struck $2,135 per troy ounce.

What's going on? For one thing, gold tends to have an inverse correlation with the U.S. dollar, the value of which has been weakening over the last three weeks amid the Federal Reserve's ambiguity about interest rate cuts. In turn, this has helped propel gold to its current record high.

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How the Fed's policy impacts gold prices

Broadly, gold is benefitting from optimism about U.S. monetary policy and investors’ hopes for lower interest rates.

On Wednesday, Federal Reserve Chair Jerome Powell provided clarification, saying interest rate cuts will be possible “at some point this year” if the economy moves as expected and inflation continues to cool. Typically, gold prices rise as interest rates fall, which is a development that could happen sooner than some analysts projected.

According to the CME Group's FedWatch Tool, there's a 73.9% probability that the central bank cuts its federal effective funds rate at its June meeting. This could serve as an ongoing catalyst for gold prices into the second half of the year.

Other reasons gold is up right now

Physical gold does not provide yield like dividend stocks or interest-bearing debt instruments like certificates of deposit or Treasurys, so there’s an opportunity cost to holding it when bond yields are high. However, recent declines in the 10-year Treasury yield — which at the current rate of 4.11% is down 17.6% from its one-year high — are supporting gold prices as investors look for stronger potential gains than Treasury notes are presently offering.

Additionally, investors are often drawn to gold because it functions as a safe haven and often performs well when global markets are volatile. Some of the recent rise in the price of gold could be attributed to geopolitical conflicts, including the wars in Ukraine and Gaza.

Another factor supporting prices has been central bank gold-buying since 2022, especially by China, which drives up demand for the precious metal. This trend continued throughout 2023 and has carried over into 2024 with central banks reporting that they increased gold reserves by 39 tons in January, more than double the amount purchased in December and the eighth consecutive month of net purchases.

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Should investors buy gold?

Gold can be a worthwhile asset for diversifying an investment portfolio, but financial advisors recommend not putting more than 5-10% of your money in the metal. While gold is having a good run, there are risks that prices could fall if inflation readings are high or if jobs numbers come in hot, for example.

However, as a store of value, the precious metal often benefits long-term investors over short-term speculators, the former of which can involve purchasing the physical metal or investing in equities such as gold miner stocks and gold-leveraged exchange-traded funds.

Ultimately, whether or not to include gold in a portfolio should be based on personal investing preferences and financial goals, but investors may be looking at a strong year ahead for the shiny yellow metal.

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