Gold hit a record as markets are bracing for global interest rates to fall. The price of gold was buoyed by the potential for U.S. monetary policy easing, increased geopolitical tensions and purchases by central banks. Gold bullion ETF SPDR Gold Trust GLD is up 19.7% this year and has advanced 25.7% past year. We believe the long-term prospects for gold prices are even bullish. Here’s why.

Falling Gold Mining Output?

John Reade, chief market strategist at the World Gold Council, told CNBC last month that while there was a notable 4% year-on-year increase in mine production during the first quarter of 2024, the broader trend indicates a plateauing of production from 2016 to 2018, with no significant growth observed thereafter.

Mine production nudged up 0.5% year over year in 2023, gained 1.35% in 2022, grew 2.7% in 2021 and recorded the first decline (down 1%) in a decade in 2020. WGC chief believes that gold’s decade-long growth story that started in 2008 is showing a downtrend. New gold deposits are also becoming scarce.

Fed to Cut Rates in September?

The Fed has indicated one rate hike this year. The odds of a rate cut in September rose due to the cooling in inflation and the labor market. There is currently a 93.3% probability of a 25-bp rate cut in September, up from 62% recorded one month ago, according to the CME FedWatch Tool.

This indicates that inflation is cooling in the United States which may goad the Fed to cut rates soon. If the Fed eases policy, the greenback will likely lose strength and bond yields will fall. Both factors should go in favor of gold investing.

Trump Assassination Attempt

The recent assassination attempt on Republican candidate Trump has reignited “Trump Trade.” Trump is known to favor low interest rates. As a result, assets that perform better in a low interest rate environment gained traction. Gold, being a non-interest-rate-bearing asset, thus has reasons to rally.

Trump’s previous era was known for trade war and geopolitical tension. In any case, political tensions are likely to be in place in the United States due to the presidential election this year. These are scenarios when safe-haven assets like gold get a boost. Some analysts also believe that Trump's tariff and tax policies could boost inflation again, deepen the budget deficit and favor inflation-protecting assets like gold.

Central Banks Buying More Gold

Central banks in emerging markets are seeking to lower reliance on the U.S. dollar for reserves holdings and are intending to hedge against inflation. The People’s Bank of China (PBoC) wore the crown for the largest single gold buyer, as it reported a total rise of 225 tons in its gold reserves in 2023. This marked 2023 as the country’s highest single year of reported additions since at least 1977.