International gold prices have soared this year, reaching record highs and prompting closer scrutiny of the factors behind the surge.
CNN Business reported that the rise in gold prices proves that the U.S. economy remains fragile despite the stock market’s gains.
On Tuesday, gold prices soared to $2,687.30 per ounce (31.1 g), setting a new record.
Gold prices have risen 30% this year, outpacing the S&P 500 index’s growth of 20%, as central banks in countries like China, India, and Turkey boost their gold purchases to reduce their holdings of U.S. dollars.
Despite buoyant stock markets, many investors view the spike in gold prices as reflecting deeper concerns about the U.S. economy.
In a press conference last week, Federal Reserve Chair Jerome Powell cited the decision to lower interest rates by 0.5 percentage points as a preemptive measure to address a softening labor market.
However, some economists remain unconvinced, arguing that rate cuts may not stabilize unemployment.
The latest consumer confidence index, released Tuesday, adds to the uncertainty. It shows increasing pessimism among American consumers, particularly concerning job prospects.
Christina Hooper, Global Market Strategist at Invesco, noted that many investors interpret the Fed’s rate cuts as a crisis signal, pointing to significant structural weaknesses within the U.S. economy.
The uncertainty surrounding the economy appears to be fueling demand for gold, a traditional safe-haven asset. In a note released on Tuesday, JP Morgan Chase projected that gold prices could exceed $2,850 per ounce next year if the Federal Reserve continues its rate-cutting trajectory.
The Fed’s rate cuts not only encourage investment in gold over U.S. Treasury bonds but also drive up silver prices.
With gold gaining popularity as a safe asset during economic uncertainty, its price increase has been accompanied by silver prices surging 34% this year, drawing attention by outpacing gold’s increase.
Moreover, the Chinese government’s new stimulus measures will elevate silver prices further.
Citi strategists predict that rising demand for solar energy and electric vehicles in China will continue to increase silver prices alongside the Fed’s rate cuts.
CNN Business reported that the extensive use of silver in jewelry, electronics, construction infrastructure, and green energy also reflects an optimistic economic outlook.
