Central banks have also been buying reserves of gold. Credit: Roman Bodnarchuk/Shutterstock.com.

The price of gold hit a six-month high on Monday, likely prompted by investor suspicion that the US Federal Reserve has finished raising interest rates, along with a weaker dollar boosting demand.

Spot gold prices rose to $2,013.99 per ounce, taking the precious metal’s gain to just over 10%.

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Konstantinos Venetis, commodities economist at GlobalData TS Lombard, said: “A combination of three factors has pushed up the price of gold: central bank purchases (mainly in emerging markets); geopolitical turbulence; and, more recently, markets pricing in ‘peak’ interest rates and the rising likelihood of a softer USD [US$].”

The price rise has been buoyed by the fall in the value of the dollar, which makes buying gold cheaper for investors holding other currencies.

At the start of November, the Federal Reserve agreed to hold the federal funds rate at between 5.25% and 5.5% rather than raise it, as the consumer price index had come down to 3.7% in September. This has prompted speculation that interest rates have now peaked. Gold is seen as a more attractive investment when interest rates are falling as it does not rely on interest rate income for its value.

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“Economic figures coming out of the US this week, both on the growth and inflation front, will make or break a case for whether gold remains above $2,000,” Kyle Rodda, a financial markets analyst at Capital.com trading researchers, told Reuters.

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According to the World Gold Council, central banks bought a record 1,136 tonnes (t) of gold in 2022, plus an additional 800t over the first three quarters of 2023. The People’s Bank of China was the single largest buyer, acquiring 181t.

The war between Israel and Hamas has also contributed to the price rise as gold is seen as a stable asset in times of geopolitical uncertainty.