Boosted by expectations of further interest rate cuts by the Federal Reserve and escalating tensions in the Middle East, international gold prices have reached new highs.

On September 20th, spot gold closed up 1.4%, at $2,621.96 per ounce, breaking through the $2,600 per ounce mark for the first time; U.S. futures gold rose by 1.2%, with a settlement price of $2,646.20 per ounce.

On September 23rd, spot gold once broke through $2,630 per ounce, continuing to set historical records.

This year, the price of spot gold has been climbing steadily, soaring from the beginning of the year at $2,000 per ounce, fluctuating around $2,400 per ounce from May to July, breaking through the $2,500 per ounce mark in mid-August, and then breaking through $2,600 per ounce a month later.

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The Fed's 50 basis point rate cut marks a gradual entry into a loose monetary environment globally, further increasing the attractiveness of gold to capital.

Amidst the wave of rate cuts, Wall Street institutions are currently optimistic about gold prices, and the future question seems not to be whether it will rise, but how high gold can actually go?

This year, international gold prices have set new records more than 20 times, successively breaking through the round numbers of $2,100, $2,200, $2,300, $2,400, $2,500, and $2,600 per ounce, with a nearly 30% increase within the year.

Zhao Wei, Chief Economist at Shenwan Hongyuan Securities, told reporters that central bank gold purchases may be an important driver behind the first wave of this year's increase.

In the first quarter of 2024, global central banks collectively purchased 299.9 tons of gold, significantly accelerating compared to the fourth quarter of 2023.

Since central banks typically buy spot gold, and spot gold trading is concentrated in the London and Zurich markets, trade and export data can also confirm the promotion of central bank gold purchases on the rise in gold prices during this period.

In terms of trading, a breakdown of the time data of gold price increases from February 14th to April 17th shows that during this period, gold prices often rose sharply during the independent trading hours in Europe; in terms of export data, the total export scale of gold from Switzerland and the UK in the first quarter reached a historical high of $55.31 billion.

For the recent second wave of increases, Zhao Wei believes that the release of investment demand under the background of declining U.S. Treasury yields is the main reason.

Since the second quarter, central bank gold purchases have slowed marginally, but the investment demand catalyzed by the decline in U.S. Treasury yields has taken over the "baton".

Under the guidance of the June interest rate meeting dot plot and other indicators, the last wave of "rate cut trading" before the rate cut has begun, and since June 10th, the nominal and real interest rates of 10-year U.S. Treasury bonds have fallen by 74 and 58 basis points, respectively.

The significant decline in U.S. Treasury yields has stimulated the release of gold investment demand.

From June to August, investors in North America, Europe, and Asia increased their gold holdings by 34.6 tons, 42.3 tons, and 12.1 tons, respectively.

Wang Yi, Chief Economist at Great Wall Securities, analyzed for 21st Century Economic Report reporters that there are three leading factors for the new high of spot gold.

The first is the Fed's unexpected 50 basis point rate cut, the decline in the risk-free interest rate of the U.S. dollar, and the phased weakening of the currency value, highlighting the international monetary value of gold.

The second is the market's doubts about the subsequent economic recession in the United States.

Although the capital market has temporarily interpreted the economic recovery trend after the preventive rate cut - the bear steepness of U.S. Treasury bonds, the catch-up rise of U.S. stocks, and the rebound of commodities, whether the subsequent U.S. employment and manufacturing PMI and other economic data can stop falling and rise still needs to be verified.

The third is the high uncertainty of the U.S. election and the tense situation in places like Lebanon in the Middle East, and the value of gold's risk-avoidance attributes is also highlighted.

In addition, after India lowered the import duty on gold this summer, the demand for gold jewelry and bars from Indian consumers surged, which has also become a key force in driving the gold price to a new high.

Data released by the Indian government shows that in August, India's gold imports reached a historical high of $10.06 billion in U.S. dollar value.

As gold prices continue to reach new highs, some concerns in the market have also emerged, such as the high real interest rates, but gold prices do not fall but rise.

Zhao Wei analyzed that since 2022, gold prices have significantly deviated from real interest rates, showing a large gap.

If only considering real interest rates, the current reasonable position of gold prices may be between $800 and $1,200 per ounce, but central bank gold purchases may be an important explanation for this gap: the investment demand that focuses on inflation, opportunity cost, etc., under the traditional framework mainly dominates the formation of gold prices, which basically conforms to the real interest rate framework; since 2022, the scale of central bank gold purchases has increased significantly, bringing about the outward shift of the demand curve, and thus leading to the widening gap between gold prices and the real interest rate center.

After the U.S. and Europe initiated SWIFT sanctions against Russia, concerns about sanctions and prevention of changes in the monetary system may have become a reason for some countries to manage their foreign exchange reserves.

As of July 2024, the proportion of gold in foreign exchange reserves in countries such as China, India, and Japan is still relatively low, and there is still room for gold purchases.

The rhythm of gold purchases under the "passive reduction" of U.S. Treasury bonds is also expected to be maintained.

Zhao Wei analyzed that the rhythm of central bank gold purchases in countries such as Russia is related to the rhythm of the reduction of U.S. Treasury bonds.

Before December 2025, the scale of long-term U.S. Treasury bonds maturing is still on the rise, and the "passive reduction" type that does not continue after maturity is expected to continue, and the rhythm of gold purchases based on this is also expected to be largely maintained.

However, even if there is still "room", central bank gold purchases may also smooth the rhythm to prevent the gold price from rising too fast.

Looking at historical data, the monthly percentage increase and decrease of gold prices are closely related to the monthly percentage change of the 10-year U.S. Treasury real interest rate, and the negative correlation between the two has been relatively stable for a long time, and it has been significantly negatively correlated since August 2022, and the investment demand in Europe and America is dominated by the real interest rate framework.

Zhao Wei analyzed that there is still some uncertainty in the trend of U.S. Treasury rates in the future, and attention should be paid to the possible trend of U.S. Treasury rates after the election.

Under the Trump policy scenario, the advancement of "tariff increases" may drag the U.S. economy into a recession, and under the "recession trading", U.S. Treasury rates will still fall, which is bullish for gold; under the Harris policy scenario, its subsidy policies for residents may support the resilience of U.S. consumption, and if the "recovery trading" starts, it may limit the upward space of gold prices.

The brilliance of gold is becoming more and more dazzling, and it is almost certain that it will rise in the next stage.

Even with a nearly 30% increase this year, institutions are still optimistic about gold prices.

Commerzbank believes that the expectation of further rate cuts by the Fed in the next few months will keep gold prices rising, and as long as these expectations continue to exist, gold prices should continue to rise.

BofA strategist Michael Hartnett said that with the arrival of a new round of the Fed's easing cycle, the risk of bubbles in some markets is coming again, and the best way to allocate the investment portfolio is bonds and gold to hedge growth and inflation risks.

Citi Research's head of North American commodities, Aakash Doshi, even predicted that by mid-2025, the price of gold may reach $3,000 per ounce, driven by Fed rate cuts, strong ETF demand, and off-exchange physical demand.

However, after a continuous rise, investors still need to be alert to the risk of gold price adjustments in the short term.

OCBC Bank's foreign exchange strategist Christopher Wong is bullish on gold, but said he would be cautious in the short term.

Moreover, the Fed is not a monolithic block, and different interpretations of data have also caused huge differences.

On September 20th, Fed governors Waller and Bowman made their first public speeches after the Fed cut rates by 50 basis points, reflecting the huge differences within the Fed on the magnitude of action.

Waller said that he supported the 50 basis point rate cut because the decline in U.S. inflation was faster than he expected.

Therefore, when turning to support the weak labor market, the Fed has more room for easing.

Bowman, who cast the only dissenting vote, said that she did not approve of the Fed's 50 basis point rate cut, but preferred a 25 basis point rate cut, because inflation is still higher than the 2% target level, which may lead the public to think that the Fed has prematurely declared victory over inflation.

It is necessary to move towards a more neutral policy stance at a prudent pace, to ensure that inflation falls to the 2% target, and to avoid unnecessarily stimulating demand.

Looking forward, Wang Yi analyzed for reporters that under the expectation of a rate cut cycle and a soft landing, the dollar will depreciate in stages, and international gold prices may strengthen in stages.

If the rate cut cycle moves to the latter half, and the expectation of a soft landing is verified, the dollar may strengthen again, and gold prices may touch the top of the stage.

The verification of this round of the U.S. soft landing still needs 1-2 months, focusing on economic data such as PMI, employment, wages, and retail, and before that, gold may still have a slight upward space.