Gold and silver surge to new records as haven demand mounts

Precious metals, particularly gold and silver, surged to new record highs as demand for safe havens increased due to global economic uncertainties, the ongoing conflict in the Middle East, and a tight race in the US elections.

Meanwhile, major central banks worldwide have largely begun easing monetary policy and cutting interest rates, with gold responding strongly to decisions by the US’s Federal Reserve.

On Monday, the People’s Bank of China (PBOC) cut its benchmark mortgage rates by more than expected in a bid to boost the economy, driving commodity prices, including gold and silver, higher.

The spot gold price rose by 0.32% to $2,730 per ounce, while gold futures on the Comex climbed 0.59% to $2,746 per ounce as of 6:46 am CET, both reaching new record highs for the fourth consecutive trading day. Silver futures soared by 3.12% to $34.30 per ounce, also hitting a new record.

China cuts key lending rates to record lows

China lowered its 1-year and 5-year Loan Prime Rates (LPR) by 0.25% to record lows of 3.10% and 3.60%, respectively, in an effort to revive its economy as part of stimulus measures announced roughly a month ago.

The 1-year LPR serves as the benchmark rate for most new and outstanding corporate and household loans, while the 5-year LPR is primarily used for mortgage rates.

Although the cuts were widely anticipated, the depth of the reduction, slightly exceeding the expected 0.2%, took markets by surprise. Metal prices may have reacted to the decision and rose further following the news. 

In fact, both gold and silver prices surged on Friday when PBOC Governor Pan Gongsheng spoke at a financial forum, indicating that the benchmark lending rates would be reduced by 0.2% to 0.25%.

He also noted that the reserve requirement ratio (RRR) – the amount of cash banks must hold – would be lowered by a further 0.25% to 0.5% by the end of the year.

Precious metal prices do not typically respond to China’s monetary policy. However, the movements may suggest that investors tend to react to any banks’ rate-cutting decisions as falling interest rates make it less costly to invest in precious metals during times of uncertainty. 

In September, the PBOC unexpectedly cut the RRR by 0.5%, followed by a broad package of stimulus measures, including rate cuts, direct cash injections into the stock market, and reduced down payments for homebuyers, a week after the Federal Reserve enacted its significant 0.5% rate cut in September.

The European Central Bank (ECB) also implemented its widely expected third rate cut of the year last month. Investors have been piling up safe-haven assets, especially gold, as a means of preserving value amid rising geopolitical tensions. Silver typically follows gold’s trend, albeit with more volatility.

Gold may extend gains as a haven asset

In the Middle East, Israel’s Prime Minister Benjamin Netanyahu is reportedly in talks with top security officials following a Hezbollah drone explosion near his private residence on Sunday. Financial markets are closely monitoring the potential for further escalation in the conflict between Israel and the Iran-backed Lebanese group. 

Meanwhile, the US presidential election on 5 November is shaping up to be a close race between Donald Trump and Kamala Harris, according to recent polls.

Kelvin Wong, senior market analyst at Oanda, believes gold’s uptrend has been “reinforced indirectly” by “rising odds of Trump winning the election”.

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A Trump victory could introduce further uncertainty into the global economy, with implications for US tariffs on goods from China and Europe, the ongoing war in Ukraine, and surging US government debt.

Wong commented: “Given that Trump’s ‘generous’ corporate tax cut proposal (from 21% to 15%) will likely further widen the US federal deficit, the market may begin to question the creditworthiness of the US government, potentially eroding confidence in US Treasuries and strengthening gold.”

However, a potential Trump win may also strengthen the US dollar and cap gold gains due to the negative correlation between the dollar and gold prices.

Dilin Wu, research strategist from Peperstone, told Euronews: “With Trump now significantly ahead of Harris in betting markets, the ‘Trump trade’ – often associated with a stronger dollar – continues to weigh on gold’s upside potential.”

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