The price of gold continues to rise and this Wednesday it reached another record, reaching 2288 dollars per ounce. This rise is being motivated by the possible cut in interest rates by the United States Federal Reserve.
Fed Chairman Jerome Powell said on Friday that the inflation data “is what we were expecting” and that “you won’t see us overreacting.”
“The expectation of falling rates continues to be an important factor in the bullish outlook for gold,” said Joni Teves, precious metals analyst at UBS.
Precious metal prices tend to share an inverse relationship with interest rates: as interest rates fall, gold becomes more attractive compared to fixed income assets such as bonds, which would produce weaker returns in an environment of lower interest rates.
Despite being considered a volatile investment, experts point to uncertainty in the markets and excess liquidity as justifications for this increase. Gold’s recovery has been fueled by robust purchases by global central banks in an attempt to diversify reserve portfolios due to geopolitical risks and domestic inflation. The Fed’s main inflation gauge for February rose 2.8% year on year.
The price of gold is also determined by the dollar exchange rate. The US currency is the main reserve currency around the world, competing with gold. This is why these two assets have an inverse correlation, when one appreciates, the other generally has an opposite movement.
The American elections are another factor pointed to the increase in the price of gold, which is experiencing its greatest appreciation in more than 50 years.
In Portugal, gold reserves follow this trajectory, and gold at the Bank of Portugal is valued at 21 billion euros, a value that has doubled in the last decade.
