The price of gold reached a new record high due to a shift in Federal Reserve policy and escalating geopolitical tensions.

Gold prices have surged to an all-time high as speculation surrounding a potential Federal Reserve policy shift and mounting geopolitical tensions fueled a rally in the precious metal.

On Tuesday, spot gold climbed as much as 1.3% to reach a new peak of $2,141.60 per ounce before retracting to a 0.6% increase. Similarly, US gold futures experienced a similar trajectory, peaking at $2,150.50 per ounce before settling at $2,134.80. Over the past five sessions, gold has seen an uptick of approximately $100, driven by a combination of expectations for monetary easing, geopolitical unrest, and concerns about a possible downturn in equity markets.

The recent significant movement has caught some market observers off guard, suggesting that momentum may be playing a role, according to Bloomberg.

Ole Hansen, commodity strategist at Saxo Bank A/S, noted that the growing risk of a correction in the stock market, indicated by weak US manufacturing data on Friday, may have prompted some investors to shift from equities to gold.

Although the timing of the Federal Reserve’s policy adjustment remains uncertain, indications that it may be drawing closer have bolstered gold prices since mid-February. Swap markets indicate an almost 60% likelihood of a rate cut in June, a higher probability compared to early last month.

However, the recent rally has highlighted a growing disparity between spot prices and outflows from bullion-backed exchange-traded funds (ETFs). Holdings in SPDR Gold Shares, the world’s largest such ETF, decreased by 0.3% on Monday, reaching the lowest level since July 2019, according to Bloomberg data.

Nevertheless, central bank demand for gold has partially offset these outflows, helping to keep prices elevated despite spikes in real interest rates last year. Gold also found support during the Lunar New Year as Chinese consumers sought a hedge against turbulence in the country’s stock market and property sector.

In the early months of this year, gold’s status as a safe-haven asset has been underscored by heightened geopolitical risks, including incidents of shipping attacks in the Red Sea indicating escalating tensions in the Middle East. Additionally, concerns about China’s economic challenges and the upcoming US presidential election at the end of the year have added to the potential volatility.

Ewa Manthey, commodities strategist at ING Groep, commented, “Speculation surrounding a potential pivot in Fed rates and ongoing geopolitical tensions continue to drive gold’s appeal.” Manthey expects gold prices to continue trading higher this year due to supportive safe-haven demand amid geopolitical uncertainty and ongoing conflicts, including the upcoming US election.

Despite its recent surge, gold still has room to reach its inflation-adjusted peaks set over a decade ago. While it has increased by over 600% since the turn of the millennium, adjusting for inflation, it remains below the peak of $850 reached in January 1980, which would be equivalent to over $3,000 in today’s dollars.