Gold at all time high as RBA cuts cash rate to record lows

Gold prices in Australian dollars hit an intra-day all-time high this morning, pushing above the AUD 1,900 per ounce mark for the first time.

Gold prices have rallied over the past week as fears about a slowdown in global growth and continued uncertainty regarding a global trade war have negatively impacted on risk assets.

Since early May 2019, the S&P500 has fallen almost 7%, with gold benefitting from safe haven asset flows, alongside government bonds.

Adding further fuel to the recent upside in the gold price is the recalibration of interest rate expectations in the United States, with markets now expecting up to two interest rate cuts by the Federal Reserve in 2019.

For Australian investors, expectations of lower rates have become reality, with a widely anticipated reduction in the official cash rate by the Reserve Bank of Australia (RBA) taking place earlier today.

The decision by the RBA puts the local cash rate at a record low of just 1.25%. This will likely reinforce the case for gold in the minds of many investors who are looking for alternative assets in an environment where the 'real' return on cash is close to, and in many cases below, zero.

These trends are likely to remain in place for some time, with markets currently expecting the RBA will follow up today’s interest rate cut with at least one more before Christmas 2019. Some forecasters, including JP Morgan, are even more bearish, recently stating that the cash rate may be cut all the way to just 0.50% within a year.

While the market impact of the latest moves in monetary policy is uncertain, we expect the strong demand for gold to continue and reinforce the role it can play in a well-diversified investment portfolio.