Gold Climbs to Record High on Geopolitical Risks

Gold touched a record high as fund buying combined with speculation over a Federal Reserve pivot and geopolitical and financial risks underpinned a rally in the precious metal.

Bullion rose as much as 1.3% to $2,141.79 an ounce before paring gains, with Tuesday’s high topping the previous record of $2,135.39 set three months ago.

Gold has risen more than 4% since Thursday, fueled by expectations for monetary easing, geopolitical tensions and the risk of an equity markets pullback. Macro funds and momentum buying by commodity trading advisors contributed to the gain, according to TD Securities commodity strategist Ryan McKay.

The scale of the move surprised some market watchers, particularly since there hasn’t been a significant change in expectations for the Fed’s easing pivot or other macroeconomic drivers during that time.

“The velocity and the speed was very sudden, very fast,” said James Steel, an analyst at HSBC Holdings Plc. “It didn’t seem to have a smoking gun.”

The rising risk of a stock market correction — flagged by weak US manufacturing data on Friday — may have persuaded some investors to move out of equities and into gold, said Ole Hansen, commodity strategist at Saxo Bank A/S.

While the timing of the Fed’s pivot remains uncertain, signs that it is getting closer have supported gold since mid-February. Swaps markets show a 64% chance of a rate cut in June, a higher probability than early last month. Lower borrowing costs are typically positive for the precious metal, which doesn’t offer any interest.

Macro funds, which haven’t been active in the gold market until recently, were a new force of buying in gold’s rally. The latest CFTC data showed hedge fund and money managers boosted their net bullish gold bets as of Feb. 27 — although it’s worth noting that this group of investors added short positions roughly in line with new long wagers, pointing to uncertainty in the market, according to TD’s McKay.

Options-related buying above $2,100 strike price also helped fuel the rally, according to HSBC’s Steel.