Gold has reached a new milestone, exceeding $2,500 an ounce for the first time, driven by expectations that the US Federal Reserve is moving closer to interest rate cuts.
On Friday, spot gold in New York surged by as much as 2.2%, breaking the previous record established last month. This increase followed disappointing data from the US housing market, which strengthened predictions for quick and significant rate cuts by the Fed. Lower interest rates generally favor gold, which does not yield any interest.
The afternoon fixing price in London on Friday was $2,485.80 an ounce, compared to $2,427.35 just a week prior. In Thailand, the Gold Traders Association reported local selling prices on Saturday at 41,000 baht per baht-weight (15.2 grams), reflecting an increase of 200 baht from Friday and 450 baht from the previous week.
Gold prices have risen over 20% this year, fueled by growing optimism around monetary easing and significant purchases by central banks. Increased demand for gold as a safe-haven asset amid rising geopolitical tensions, including conflicts in the Middle East and the ongoing war in Ukraine, has also contributed to this surge.
Earlier in the year, gold prices began to climb unexpectedly, even as seasoned analysts found it hard to pinpoint a clear macroeconomic catalyst justifying the rally. These gains have persisted despite a pullback in traders’ predictions regarding the timing of rate cuts.
Recently, gold prices have trended upward in anticipation that the US central bank will start to lower rates as early as its meeting on September 17-18.
Recent US economic indicators have convinced the market that the Fed is poised to cut borrowing costs from levels that have remained high for over two decades, reviving classic influences on gold prices.
There is ongoing debate about the magnitude of potential rate cuts, as recent economic data has sent mixed signals about the health of the US economy. Most analysts expect a quarter-point reduction in September, while some speculate that the Fed may opt for a more significant half-point cut to stimulate growth.
“Gold investors often tend to believe the Fed will act more aggressively to accommodate the economy,” noted Bart Melek, global head of commodity strategy at TD Securities. He further suggested that prices could increase to $2,700 in the upcoming quarters, as “the macroeconomic, monetary, and central bank factors are aligning.”
Speculators ramped up their net bullish positions on Comex gold futures to a near four-year high in the week ending August 13, according to data from the Commodity Futures Trading Commission. Meanwhile, gold holdings in exchange-traded funds have shown growth in recent months after experiencing two years of mostly negative inflows, as reported by Bloomberg.
Traders on Friday analyzed new economic data for insights into the Fed’s potential policy direction. The data indicated a decline in new-home construction in the US to its lowest level since the pandemic’s aftermath, as builders react to weakening demand.
Bob Haberkorn, senior market strategist at RJO Futures, asserted that this is yet another sign that a recession may be looming. He believes the Fed will cut rates “more significantly than previously anticipated.”
