Gold at a new high

Spot gold rose to a new record high of $2,670.52 per ounce on the morning of September 25, 2024, with gold futures for December delivery hitting a high of $2,694.75 per ounce. Both later saw a slight correction but still held at high levels. Looking at the percentage return, we can see that the spot price of the precious metal has risen more than 43 per cent year-on-year, and futures contracts have notched up a gain of almost 37 per cent.*

Price performance of gold futures contracts for December delivery over the last 5 years (source: Investing.com)*

Spot gold prices over the last 5 years (source: Investing.com)*

Interest rates are key

The price of the precious metal has risen to a new record high due to lower interest rates. In fact, the recent central bank decision to cut interest rates by 50 basis points has had a significant impact on global markets. As the Fed moves into an easing cycle with further rate cuts expected, the value of the US dollar has weakened, giving gold strong support. Expectations are now set for an overall 125 basis point cut in interest rates, according to the City, with Goldman Sachs forecasting a 25 basis point cut at each meeting until mid-2025.Investors are closely watching statements from Reserve officials as well as key economic data to clue in on the future of Fed policy. Statements from central bank branch presidents have also contributed to the overall enthusiasm. While Neel Kashkari of the Minneapolis Fed takes a dovish stance with a lower cut, Chicago branch president Austan Goolsbee expects a more significant cut. 

The Middle East conflict has spread

Gold also benefited from safe-haven demand amid heightened tensions in the Middle East. The ongoing conflict between Hamas and Israel, has spread to Lebanon. Explosions of pagers and other electronics used by members of the Hezbollah militant group have injured thousands and killed hundreds of civilians as well as its commanders. The response of the Lebanese terrorists was immediate, as was that of Israel, which subsequently bombed 1,600 military targets in Lebanon. Hezbollah, according to their statements, will only stop the operation if a ceasefire is reached in Israel and Gaza, which does not seem realistic at this time. If tensions continue to persist or even escalate, the price of gold, which is a safe haven in uncertain times on the capital markets, will continue to benefit from these negative developments. 

Other metals have also risen

The beginning of the last week of September was also positive for industrial metals. Reference copper contracts traded at USD 9 864 per tonne on the London Metal Exchange (LME) on 25 September and futures for December delivery on the Chicago Metal Exchange (CME) were at USD 4.51 per pound. Both were near two-month highs with year-on-year gains of around 20 per cent. Iron ore futures for January delivery posted a sharp one-day increase of more than 5 percent. They closed the trading day at CNY 715.50 (USD 101.84) per metric tonne on China's Dalian Commodity Exchange. The ore was 4 percent lower compared with a year ago.*

Price development of LME copper benchmark futures over the last 5 years in USD (source: Investing.com)*

Price development of copper futures for December delivery on the CME over the last 5 years in USD (source: Investing.com)*

Price development of iron ore futures on Dalian over the last 5 years in CNY (source: Investing.com)*

Industrial metals rose thanks to Chinese stimulus

Copper and iron ore prices reacted by rising due to traders' optimism on the recent stimulus measures by the People's Bank of China (PBOC) aimed at boosting its economy. The biggest package of measures since the pandemic includes a reduction in banks' reserve requirements, a cut in the seven-day repo rate, which is seen as an important step. Stimulus measures also include lowering interest rates on mortgages as well as new measures in the real estate market to add to existing measures. The PBOC has not yet specified when the changes will occur, but it should happen in the near future. The bank's decision bodes particularly well for copper, which is key to local infrastructure and industrial growth. In turn, the support for the property market is good news for ore, demand for which has been falling in the country due to the crisis the sector is in. While Beijing's measures have sparked optimism, only time will tell whether these steps will really be enough.

Olivia Lacenova, chief analyst at Wonderinterest Trading Ltd.

* Past performance is no guarantee of future results.

[1] Forward-looking statements are based on assumptions and current expectations, which may be inaccurate, or on the current economic environment, which may change. Such statements are not guarantees of future performance. They involve risks and other uncertainties that are difficult to predict. Results may differ materially from those expressed or implied by any forward-looking statements.