• Gold prices have hit a record high of over $2,600 due to expectations of U.S. interest rate cuts and Middle East tensions.
• The value of gold has increased by 27% in 2024, marking its biggest annual rise since 2010.
• The Federal Reserve's decision to initiate an aggressive easing cycle has added to the appeal for gold.
• Despite eroding retail demand in China and India, analysts believe geopolitical risks and a weak U.S. dollar could sustain gold's rally.

In an unprecedented turn of events, gold prices have soared above the $2,600 mark for the first time in history. This surge, which occurred on a Friday, was driven by expectations of further U.S. interest rate cuts and escalating tensions in the Middle East. The spot gold was up by 1.3% at $2,620.63 per ounce by 1:43 p.m. ET (1743 GMT), while U.S. gold futures settled 1.2% higher at $2,646.20.

This rally in gold prices is not an isolated incident. It is part of a broader trend that has seen the value of this precious metal climb by 27% in 2024, marking its biggest annual rise since 2010. This significant increase is largely due to increased investor demand for safe-haven assets amid global uncertainties and central bank actions.

The Federal Reserve's decision to initiate an aggressive easing cycle on Wednesday with a half-percentage-point reduction has added to the appeal for gold, which pays no interest.

The Impact of the Federal Reserve's Decision

Daniel Ghali, a commodity strategist at TD Securities, noted that there is still some buying activity associated with the Fed's decision to begin their easing cycle with a big cut. However, he also pointed out that the source of this buying activity remains off our radar, given ETF inflows are relatively marginal and Asian buyers are still on a buyers' strike, all signs of extreme positioning.

This record rally in gold prices has had a significant impact on retail demand in top consumers China and India. The rally has eroded retail demand in these countries, indicating that the current buying spree might not be sustainable. This has led some analysts to suggest that the gold rally might be due for a correction.

Despite these concerns, some analysts believe that gold could see more upward spikes. Fawad Razaqzada, a Forex.com analyst, noted in a note that geopolitical risks, such as ongoing conflicts in Gaza, Ukraine, and elsewhere, will ensure to sustain gold's safe-haven demand.

Geopolitical Risks and the U.S. Dollar's Role

In addition to geopolitical risks, the continued weakness in the U.S. dollar is providing additional support for gold prices. This makes gold more attractive to holders of other currencies, offering additional tailwinds for the precious metal.

However, not all precious metals have been performing as well as gold. Spot silver gained 1.2% to $31.16, while platinum fell 1.1% to $978.50 and palladium shed 0.5% to $1,074.84.

Looking back at historical events, the current situation mirrors the gold rally of 2010, when prices rose significantly due to similar factors. Back then, the global economic crisis and the subsequent quantitative easing measures by central banks worldwide led to a surge in gold prices. The current rally, however, has surpassed the 2010 levels, indicating the severity of the current global uncertainties and the appeal of gold as a safe-haven asset.