The price of gold rose to a record high this week, pushing past the $2,100 an ounce mark. It wasn’t three years of inflation that caused prices to soar. Rather, it was the growing belief the Federal Reserve is about to cut interest rates.
The question gold bugs might be asking is, can the price keep going higher? Some analysts think they can rise to the inflation-adjusted record.
“We’re still a ways away, which then also points to the potential upside,” Peter Boockvar, chief investment officer at Bleakley Financial Group, told CNBC.
In fact, Boockvar believes the price of gold could test the inflation adjusted price it hit in 1980, which would be $3,200 an ounce in today’s dollars.
Inflation is less of a factor
There could be many reasons for gold’s recent rise, though inflation doesn’t seem to be one of them. It has only been in recent weeks that gold prices accelerated. Analysts point out that central banks around the world are buying fewer U.S. Treasury bonds and instead plowing money into gold.
At the same time gold prices have risen, so has the price of Bitcoin. The digital currency began to rally in mid 2023 and this week surpassed 2021’s record of $69,000.
So, why would falling interest rates push gold prices higher? Analysts point out that gold and interest rates usually move in opposite directions.
If the Fed cuts interest rates, it suggests they are less concerned about inflation. Falling rates make U.S. Treasury bonds less attractive and “safe haven” money typically moves from bonds into the precious metal.
Is there anything that could bring a sudden end to the gold rally? An unexpected jump in inflation could probably do the trick. That’s why the market will be closely watching next week’s Consumer Price Index (CPI) for February. In January, the CPI was slightly hotter than expected.