Gold futures settled at the highest level ever on Monday as traders bet the Federal Reserve will start cutting interest rates in the second half of the year.
The gold contract for April gained $30.60, or 1.46%, to settle at $2,126.30 per ounce, the highest level dating back to the contract's creation in 1974.
It is the second consecutive trading session in a row in which gold has settled at a record, with the April contract closing at an all-time high of $2,095.70 on Friday.
The VanEck Gold Miners ETF (GDX) closed higher by 4.3% and for its third consecutive day of gains. It's also trading above the 50-day moving average of $28.295 for the first time since Jan.12.
When adjusted for inflation, gold set an all-time high of about $3,200 in 1980, according to Peter Boockvar, chief investment officer at Bleakley Financial Group.
"We're still a ways away, which then also points to the potential upside," said Boockvar, who thinks gold will also test the inflation-adjusted record.
Gold has performed well despite high interest rates and a strong dollar, he said. This is largely due to the world's central banks buying an enormous amount of gold after the U.S. and European Union confiscated $300 billion of Russia's foreign exchange reserves in the wake of Moscow's invasion of Ukraine, he said.
"You can imagine the mentality of China, Saudi Arabia and other countries saying, 'Do we really want to have all of our assets in U.S. Treasurys?'" Boockvar said.
Gold now has upside on the expectation that the Fed will start cutting interest rates this year as inflation comes down, he said. When rates fall, gold prices typically rise as investors seek a safe haven as assets such as bonds become less attractive because they no longer deliver attractive yields.
Bart Melek, global head of commodity strategy at TD Securities, said gold is rising after economic data, particularly in the manufacturing sector, came in weaker than expected last week.
"The expectation here is that inflation will likely moderate over time as the economy weakens, and that will give latitude to the Fed to get serious about cutting rates," he said. Traders are betting the Fed will cut rates in June, according to the CME Fed Watch Tool.
But gold prices could face headwinds if economic data, particularly on employment, comes in hot.
"Let's say payrolls come in stronger than people think — all bets are off and I think we give up a lot of what we gain. That's the big one for me," Melek said.
Gold is up 2.63% year to date.
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