Gold Prices Surge to Record Highs Amid Fed Rate Cut Expectations
On Tuesday, spot gold prices experienced a significant rise, climbing nearly $47 and closing at $2,468.70 per ounce. Early Asian trading on Wednesday saw further gains, with prices reaching a new record high of $2,470.04 per ounce.
Bloomberg's analysis attributes the surge to increasing expectations of a Federal Reserve rate cut and traders' bets on Donald Trump's potential win in the U.S. presidential election. Additionally, recent increases in exchange-traded fund (ETF) positions have added to gold's upward momentum.
FXStreet analyst Christian Borjon Valencia highlighted that gold prices have reached record highs due to growing anticipation of a Fed rate cut in September. The possibility of Trump winning the election has heightened market volatility, pushing investors towards gold. Lower-than-expected inflation data and dovish comments from Fed Chairman Jerome Powell also supported the gold price.
The Chicago Mercantile Exchange (CME) "Fed Watch Tool" indicates a 100% chance of a 25 basis point rate cut in September, with some economists even predicting a 50 basis point cut.
Valencia emphasized that political developments, including Trump's influence, are driving the rise in gold. Trump's potential presidency, focusing on raising tariffs and cutting taxes, could increase the U.S. budget deficit and create inflationary pressures.
Powell's remarks at the Economic Club of Washington on Monday suggested a rate cut could come before reaching the 2% inflation target, further boosting gold prices. The U.S. Consumer Price Index (CPI) for June showed a 0.1% year-over-year decline, the first since May 2020, and a 3.0% year-over-year increase, below market expectations.
Tai Wong, an analyst at Independent Metal Traders, noted that Powell's comments on Monday confirmed market expectations for a September rate cut, propelling gold prices to new highs.
San Francisco Fed Chairman Richard M. Daley also expressed confidence that inflation is moving towards the Fed's 2% target.
As U.S. interest rates fall, the opportunity cost of holding non-interest-bearing gold decreases, making it more attractive to investors. Consequently, gold prices have risen more than 19% this year, following a 13% rise in 2023.
City Index market analyst Fawad Razaqzada attributed gold's optimistic outlook to weak economic data, declining inflationary pressures, and pressure on U.S. bond yields.
Looking at technicals, Valencia noted that traders are now aiming for $2,500 per ounce after Tuesday's surge. Gold's bullish momentum, supported by the Relative Strength Index (RSI), suggests further gains.
Valencia identified the next resistance levels at $2,475 and $2,500 per ounce, while potential support levels are at $2,450, $2,400, and $2,350 per ounce if gold prices decline.
Financial website Economies.com supports this bullish outlook, noting that gold successfully touched its target of $2,450 per ounce and is now expected to continue its uptrend, with the next target at $2,475 per ounce. Maintaining prices above $2,450 per ounce is crucial for this expected bullish trend.
