Precious metals, especially gold and silver, have recently reached unprecedented highs as investors flock to safe havens due to escalating global economic uncertainties, the ongoing conflict in the Middle East, and a tightly contested race in the upcoming US elections. Major central banks around the world have initiated a trend of easing monetary policy and reducing interest rates, with gold prices responding robustly to decisions made by the US Federal Reserve. On Monday, the People’s Bank of China (PBOC) made headlines by cutting its benchmark mortgage rates more than anticipated, aiming to stimulate economic growth. This move contributed to a significant rise in commodity prices, including gold and silver.
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The spot price of gold increased by 0.32%, reaching $2,730 per ounce, while gold futures on the Comex climbed by 0.59% to $2,746 per ounce as of 6:46 am CET. This marks the fourth consecutive trading day where both metrics have hit record highs. Additionally, silver futures surged by 3.12%, hitting $34.30 per ounce, also achieving new record levels.
PBOC’s Bold Rate Cuts
In a bid to rejuvenate its economy, China has slashed its 1-year and 5-year Loan Prime Rates (LPR) by 0.25%, setting them at historic lows of 3.10% and 3.60%, respectively. These reductions are part of a broader stimulus package announced approximately a month ago. The 1-year LPR serves as the benchmark for most new and outstanding corporate and household loans, while the 5-year LPR is primarily tied to mortgage rates. Although the cuts were largely anticipated, the extent of the reduction, slightly surpassing the expected 0.2%, surprised market participants. This decision likely spurred further increases in metal prices.
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Metal prices reacted positively on Friday when PBOC Governor Pan Gongsheng spoke at a financial forum, suggesting a reduction in benchmark lending rates by 0.2% to 0.25%. He also indicated that the reserve requirement ratio (RRR)—the amount of cash banks must hold—would be lowered by an additional 0.25% to 0.5% by the end of the year. Although precious metal prices typically do not respond directly to China’s monetary policy, it appears that investors are increasingly reacting to any rate-cutting measures from banks. Lower interest rates tend to make investing in precious metals more attractive during periods of economic uncertainty.
In September, the PBOC unexpectedly reduced the RRR by 0.5%, launching a comprehensive stimulus package that included rate cuts, direct cash injections into the stock market, and lowered down payments for homebuyers. This occurred shortly after the Federal Reserve implemented a significant 0.5% rate cut. Similarly, the European Central Bank (ECB) executed its third rate cut of the year last month. As geopolitical tensions rise, investors have been accumulating safe-haven assets, particularly gold, to preserve value. Silver generally follows gold’s lead but tends to exhibit greater volatility.
The Outlook for Gold as a Safe Haven
In the Middle East, tensions are escalating as Israeli Prime Minister Benjamin Netanyahu engages in discussions with top security officials following a drone explosion attributed to Hezbollah near his private residence on Sunday. Financial markets are closely watching the situation for any signs of further escalation in the conflict between Israel and the Iranian-backed Lebanese group.
Meanwhile, the US presidential election, scheduled for November 5, is shaping up to be a close contest between Donald Trump and Kamala Harris, according to recent polls. Kelvin Wong, a senior market analyst at Oanda, suggests that gold’s upward trajectory has been “indirectly reinforced” by the “increasing likelihood of Trump winning the election.” A potential Trump victory could generate additional uncertainty in the global economy, impacting US tariffs on goods from China and Europe, the ongoing conflict in Ukraine, and the rising US government debt.
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Wong commented, “Given that Trump’s proposed corporate tax cut from 21% to 15% could further widen the US federal deficit, markets may begin to question the creditworthiness of the US government, potentially undermining confidence in US Treasuries while bolstering gold.” However, a potential Trump win could also strengthen the US dollar, which may limit gold’s upward potential due to the negative correlation between the dollar and gold prices. Dilin Wu, a research strategist from Pepperstone, noted, “With Trump currently leading Harris in betting markets, the ‘Trump trade’—often associated with a stronger dollar—continues to exert downward pressure on gold’s potential gains.”
