Gold prices hit record high: Why is the cost of the yellow metal rising?

Gold prices zoomed on Friday (September 13) around 2:10 pm GMT, hitting a record high.

At the time, spot gold was trading at record levels, up 0.7 per cent at $2,576.48 per ounce. US gold futures rallied 1 per cent to $2,605.30 per ounce.

Why are gold prices rising?

The rally came as optimism regarding the US Federal Reserve cutting interest rate received a further boost by fund inflows and a drop in the dollar.

The renewed faith in what investors believe to be imminent interest rate cuts fuelled bullish momentum around gold, pushing the price of the yellow metal higher than ever before.

Two other factors have fired gold rates: Central banks the world over easing interest rates, and a tight US presidential election race.

Interest rates, US elections behind gold rate rise

Central banks the world over set benchmark lending rates in their respective countries of origin. This is done to control liquidity in the economy and ensure inflationary and deflationary pressures are kept in check.

When the lending rates set by the banks are high, the impact of that usually trickles down to the citizens. For them, borrowing money from banks becomes costlier, and parking their money in bank deposits (that yield interest) becomes attractive.

So, when the interest rates are lowered by central banks, gold becomes more attractive, since investing in it would offer higher returns that letting money accrue interest in bank deposits.

The other reason, namely the US elections, have influenced gold prices because of gold’s status as a ‘safe haven’ investment

A tight presidential race means that there is uncertainty around how the domestic and foreign policies of US might change. That means that assets such as stocks could see volatility.

Due to this speculation, gold becomes attractive as a safe investment whose price will remain stable (or rise).

With inputs from Reuters