Gold prices surged to yet another record high on Monday, spurred by fresh U.S. inflation data released on Friday that appeared to boost rate cut expectations. 

The precious metal soared by as much as 1.6% to reach a new peak of $2,265.73 per ounce. 

February's year-over-year Personal Consumption Expenditures (PCE) saw a 2.5% increase, largely aligning with economist forecasts. Meanwhile, core PCE, which excludes food and energy prices, rose by 2.8% for the month — also in line with estimates. These figures have fueled anticipation that the Federal Reserve's first interest rate cut could occur in June. 

In a lower-rate environment, holding gold becomes more appealing compared to other assets such as bonds, which offer lower returns when interest rates decline. 

Gold has since pared its gains, with the spot gold price at $2,262.86 (+0.51%) as of 11:00 GMT, while the U.S. dollar index — a gauge of the greenback’s strength against six major peers — touched a 5-month high on Tuesday. 

Central banks, China continue to drive gold demand 

Federal Reserve Chair Jerome Powell applauded the latest U.S. inflation data release, stating it's "along the lines of what we would like to see" during his speech on Friday, echoing his previous remarks of a rate cut for this year at last month’s policy meeting. 

The surging bullion price was further boosted by robust demand for gold abroad, as global central banks pivot away from dollar reserves due to geopolitical risks. 

China's struggling stock and real estate markets have also prompted many investors to turn to the “safe haven” of gold. In February alone, the People's Bank of China acquired approximately 390,000 troy ounces of the precious metal, as per data cited by Business Insider. Overall, China's central bank now holds approximately 72.58 million troy ounces of gold, equivalent to about 2,257 tons. 

Gary Wagner, technical market analyst at Kitco, wrote: 

“Demand for gold has surged on multiple fronts. Central banks worldwide continue to accumulate bullion, bolstering their reserves. In China, private investors have turned to gold as a hedge against a weakening real estate sector and sluggish economic growth, cementing China's position as a leading driver of consumer and central bank demand”. 

Industry veterans Frank Giustra, CEO of Fiore Gold, and Pierre Lassonde, Chairman Emeritus at Franco-Nevada, told Kitco News that China was indeed one of the main driving forces behind the rising gold price. In a broadcast on March 30, they said: 

"The world hasn't woken up yet. The marginal buyer of gold is no longer the U.S. It's no longer Europe. It's China. Between the country's central bank and the Chinese public, China takes up over two-thirds of all the annual production. They are the new marginal buyer. That's where the gold price is set”. 

OCBC says gold price supported on less restrictive rates environment 

In a gold price forecast issued on Tuesday, economists at OCBC Bank said that gold price would remain broadly supported in a lower-rate environment, but did not rule out the risk of a near-term pullback: 

“We continue to maintain a constructive outlook on gold on expectations that real rates should eventually correct lower (especially after the recent rise). This should happen when the Fed embarks on rate cut cycle in Q2 2Q24.  

To add, gold’s risk-off hedge (safe haven proxy) against geopolitical risks and portfolio diversifier is now playing up. But near term, we do not rule out the risk of pullback given the rapid breakout while long gold positions in CFTC have hit record highs”. 

Gold price forecast: XAU pullback looks likely without new supporting fundamentals in Q2, as per ANZ 

In a comment released on April 2, economists at Australia’s ANZ Bank wrote that the gold price may face a pullback in the second quarter if there are no fundamentals to support the precious metal: 

“Increasing geopolitical risks come to the fore to favour haven demand. 

The market is ignoring expectations around the Fed’s easing of monetary policy and remains more focused on rate cuts occurring in the second half of 2024. We expect cuts to begin in July. 

We remain positive on the price, but a pull-back looks likely without fresh supporting fundamentals in Q2. Our year-end price target is still $2,300.”