Gold hit a record high of $2,100 per ounce on Tuesday, Mar. 5, as investors forecast a June Federal Reserve interest rate decrease. Geopolitical instability in the Middle East fueled demand for safe-haven assets.

The current gold price picked up 0.7% to $2,130.59 per ounce, reaching a record of $2,141.59. US gold futures closed at $2,137.80, up 0.6%. According to CNBC, this increase follows the previous historic high in December at $2,135.40.

Analysts attribute the gold price hike to market optimism over a Federal Reserve rate decrease. TD Securities Head of Commodity Strategies Bart Melek said, "Markets must be a bit more convinced for gold to move higher, but ultimately, in the second quarter, we believe it can surpass $2,300."

(Photo : Christopher Furlong/Getty Images) A jewellery quarter gold dealer poses with three 1kg gold bullion bars on December 13, 2023 in Birmingham, England. 

Geopolitical Fears Boost Gold Demand

Since the Israel-Hamas war began, gold, a safe-haven asset amid economic and political instability, has risen by almost $300. WisdomTree commodities strategist Nitesh Shah said geopolitical worries and a busy global election calendar would support retail gold demand.

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While there is a possibility of gold retracing some gains if the Federal Reserve hints at delaying rate cuts, analysts anticipate a significant uptrend once rate cuts are confirmed. The upcoming congressional testimony of Fed Chair Jerome Powell is eagerly anticipated for insights into the US interest rate trajectory.

According to CME FedWatch, traders expect a 70% Fed rate decrease by June. Since gold is a non-yielding asset, rising interest rates may boost bond yields and strengthen the US currency, making gold more costly for international buyers.

Even though spot silver reached its highest price since December 28, it fell 0.6% to $23.76 per ounce. Platinum fell 1.8% to $881.32 per ounce, and palladium fell 2% to $941.29. Gold's record high price is notable considering the recent interest rate hike, analysts say. 

The Federal Reserve's benchmark rate, between 5.25% and 5.5%, is at a 22-year high, which often deters gold buyers, according to the Financial Times. Despite reaching a nominal high, gold remains behind its 1980 inflation-adjusted record of $3,355 per troy ounce. A nine-year bull run for the precious metal ended with oil-driven inflation and the Middle East crisis.

VC Post earlier reported that the Federal Reserve might decrease interest rates in June after US prices increased in January. However, the annual gain was the lowest in over three years.

The 12-month PCE inflation rate rose 2.4% before January. This is the lowest year-over-year increase since February 2021, after 2.6% in December. Economists expected 0.3% monthly PCE price index growth and 2.4% year-on-year.  

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