The ECB has done it – and the US Federal Reserve will probably do the same next week: lower interest rates. Speculation about this is the main driver of the price of gold.
The price of gold has continued its record-breaking run with the prospect of falling interest rates. On the London Stock Exchange, the price for a troy ounce (about 31.1 grams) rose to 2,572.98 US dollars, the highest ever. In euros, the price also reached a record high of 2,319.30 euros per ounce.
Since the beginning of the year, the precious metal has gained around 25 percent in value. The strongest driver for the rise is speculation about falling interest rates. Since gold itself does not pay interest, the prospect of falling interest rates, for example for government bonds, increases demand for the precious metal.
On Thursday, the European Central Bank (ECB) lowered the currently most important key interest rate, the deposit rate, by 0.25 percentage points, thus continuing the interest rate turnaround in the eurozone. In addition, “the market is expecting further interest rate cuts in the coming months,” said commodities expert Carsten Fritsch from Commerzbank.
In addition, falling interest rates are also expected in the USA. Following clear indications from the ranks of the US Federal Reserve, the first key interest rate cut since the wave of inflation is expected next week. However, the American monetary authorities have left the extent and sequence of future interest rate steps open and made the decision dependent on further developments in economic data. At times, weak economic data from the USA had increased speculation of a larger interest rate step of 0.50 percentage points, which also boosted the price of gold.
Most recently, the Gaza war between Israel and the Islamist terrorist organization Hamas and the associated fears of an expansion of the conflict in the Middle East had also pushed up the price of gold several times.
Source: Stern
