Gold prices reached new heights on Monday as it extended its rally, fueled by expectations of a U.S. interest rate cut and its appeal as a safe haven asset. Spot gold rose by 0.6% to trade at $2,245.79 per ounce, while U.S. gold futures saw an increase of over 1% to reach $2,266.39 per ounce.

According to Joseph Cavatoni, market strategist at the World Gold Council, the surge in gold prices is attributed to the growing confidence in the likelihood of Federal Reserve rate cuts. Market analysts are expecting rate cuts to take place either in May or June. The Federal Reserve's inflation gauge for February revealed a 2.8% year-on-year increase, which could potentially keep the central bank from considering interest rate cuts immediately. However, their forecast for three interest rate cuts this year remains intact.

Historically, gold prices have shown an inverse relationship with interest rates. As rates decrease, gold becomes a more attractive investment compared to fixed-income assets like bonds, which offer weaker returns in a low-interest-rate environment.

Overseas demand has also contributed to the surge in gold prices, particularly in China. Caesar Bryan, portfolio manager at Gabelli Funds, cited that Chinese private investors have turned to gold due to the underperformance of the real estate sector and the general weakness of the country's economy, stock market, and currency.

Furthermore, gold prices have been bolstered by robust purchases by central banks worldwide. Geopolitical risks, domestic inflation concerns, and the weakness of the U.S. dollar have prompted central banks to diversify their reserve portfolios. China, in particular, has been a driving force for both consumer demand and central bank gold purchases, according to data from the World Gold Council.

Although the gold rally has been substantial thus far, Cavatoni pointed out that the continuation and scale of central bank purchases remain uncertain. However, he believes there is a strong case for central banks to continue buying gold.

As gold prices hit record highs, investors and market participants will closely monitor future developments in interest rates, geopolitical tensions, and central bank actions.