The price of gold set a new all-time high on Tuesday, propelling the cost of a single gold bar to over $1 million for the first time.
The precious metal hit $2,528 per troy ounce, surging past the previous record of $2,474 established on Aug. 2, 2024.
With the average gold bar weighing 400 ounces, that now brings the value of an ingot to $1,011,200.
Why are gold prices rising
Historically, the price of gold is negatively correlated with interest rates. When rates are lower, gold prices tend to go higher.
That is one of the primary catalysts behind Tuesday’s record high, as the Federal Reserve is forecast to cut its effective federal funds rate (EFFR) at each of the three remaining Federal Open Market Committee (FOMC) meetings this year.
July’s Consumer Price Index print was under 3% for the first time in over three years, which should serve as the determining factor for the Fed to enact its rate-cutting policy. According to the CME Group’s FedWatch Tool, there is now a 100% likelihood of cuts to the EFFR occurring during the September, November, and December FOMC meetings.
Another contributing factor to gold’s all-time high price is increased volatility in the stock market. Although the major market indices have already recovered from the sell-off and subsequent pullback that began in late July, analysts expect turbulence to persist for the remainder of the summer and into the final months of 2024.
The Chicago Board Options Exchange’s CBOE Volatility Index reached a crescendo earlier in August, registering a year-to-date high of 38.57. Gold, which has long been considered a safe-haven asset, benefits from negative investor sentiment in the equity markets, which is often fueled by volatility.
In other words, when investors are jittery about stocks, they tend to put more money into gold, which drives prices higher.
Gold’s performance vs. stocks
So far this year, the premier precious metal has outperformed stocks. Despite the S&P 500 having gained a robust 18%, the price of gold has risen 22.7% in 2024. For context, this is the most dramatic rise in gold prices since the pandemic resulted in the metal gaining 25% between March 2020 and August 2020.
However, while the outlook for the stock market remains strong, pinning the price performance of gold is less precise. Stocks are expected to gain momentum heading into fall on the back of three expected rate cuts by the Fed.
Those very same rate cuts, in addition to other factors — including the U.S. presidential election, geopolitical unrest in the Middle East, and ongoing fears of a recession — could fuel further gains for gold. But the truth is no one really knows where gold prices (or stock prices, for that matter) are heading.
Always remember that gold is an alternative asset, and it is advisable to commit no more than 10% of your portfolio to the speculative investment.
– Money.com
