Gold Price Nears All-Time Highs As Market Confidence In Fed Rate Cuts Grows, Igniting Gold Miners Rally

The glittering allure of gold is captivating traders once again, as the precious metal notches its fourth consecutive day of gains.

Gold prices have surged past the $2,040 per troy ounce (.oz) mark on Tuesday, a level not seen since the early days of May 2023.

The bullion, as closely monitored through the SPDR Gold Trust GLD is now within spitting distance of its all-time highs at $2,081, briefly hit during the volatile session on May 4, 2023. It’s even creeping closer to its highest closing price ever recorded, hitting $2,063 back in August 2020.

Chart: Gold Prices Are On Track To Retest Prior Peaks

Gold On The Rise: 5 Forces at Play

Broader Dollar Weakness: The greenback’s weakness has lent significant support to gold. The U.S. dollar index (DXY), as tracked by the Invesco DB USD Index Bullish Fund ETF UUP, has fallen below 103 levels on Tuesday, reaching lows last seen in mid-August.
Fed’s Tone Shifts: One of the Federal Reserve’s most fervent hawkish members, Gov. Christopher J. Waller, has surprisingly taken a dovish stance during his address to the American Enterprise Institute on Tuesday: “Inflation rates are moving along pretty much like I thought,” Waller declared.
He expressed growing confidence that current policy measures are well-positioned to slow down the economy and bring inflation back to the 2% target. Notably, he was also “reasonably confident” this can be achieved without a significant spike in the unemployment rate, which currently stands at 3.9%. Waller suggested that if the decline in inflation persists over several months, rate cuts could become a reality.
Rising Fed Rate Cut Bets: Following Waller’s remarks on Tuesday, the market has responded with increased bets on rate cuts in 2024. The CME Group’s Fedwatch tool, which gauges market-implied probabilities of future policy rates, now indicates a nearly 65% chance of a rate cut as early as May 2024. Traders are also estimating at least four rate cuts by December 2024, assigning a probability of 69%.
Treasury Yields Tumble: Gold’s primary enemies in financial markets, the yields on U.S. Treasury bonds, which offer a consistent and predictable return that the bullion cannot provide, are now less of a worry. The policy-sensitive 2-year Treasury yields have fallen by 22 basis points to 4.74% over the past two sessions, hitting levels last observed in early August. The yields of the 10-year Treasury note has also declined to 4.35%, the lowest since mid-September.
Improving Investment Demand: Investor demand, a previously dormant factor in 2022, is now beginning to tilt in favor of gold prices. The SPDR Gold Trust, the largest exchange-traded fund (ETF) tracking gold, has seen $1.5 billion in net inflows during November, marking the most robust monthly influx since March 2022.

Further Implications Of A Gold Price’s Rally

The surge in gold prices was propelling gold mining stocks upward.

On Tuesday, the VanEck Gold Miners ETF GDX showcased a remarkable 4.5% gain, while the leveraged Direxion Daily Gold Miners Index Bull 2XShares NUGT surged impressively by 8.8%. In addition, junior gold miners, tracked by the VanEck Junior Gold Miners ETF GDXJ, recorded a solid 3.7% increase.

Among Tuesday’s top-performing gold miners were Gold Fields Limited GFI, AngloGold Ashanti plc AU, and Newmont Corporation NEM, with gains of 9%, 7.5% and 6.5%, respectively.

Notably, Benzinga recently conducted a virtual event focused on the outlook for the metal industry. You can revisit this insightful discussion in the YouTube clip provided below.