Gold prices hit all-time high due to Fed rate cuts and Middle East tensions
Gold prices rose to an all-time high on Tuesday.
buoyed by a combination of aggressive interest rate cuts by the US Federal Reserve.
economic stimulus measures in China, and rising geopolitical tensions in the Middle East. The precious metal reached $2,640.18 an ounce, surpassing the previous record set on Friday.
as traders sought safe-haven assets amid financial market uncertainty..
Fed rate cut pushes gold higher
The US Federal Reserve’s decision to cut interest rates by 50 basis points by a larger than expected last week was one of the main drivers behind gold’s rise. This reduction has reduced the alternative cost of holding non-yielding assets such as gold, boosting its attractiveness among investors..
Chicago Federal Reserve President Austin Golsby has indicated that there are likely to be more interest rate cuts in the coming year.
supporting gold’s bullish outlook. Low interest rates traditionally benefit gold, reducing returns on competing assets such as bonds..
UPS analyst Giovanni Stonovo highlighted the possibility of additional interest rate cuts and economic stimulus efforts in China as key factors in gold’s rally. He also noted that any short-term price corrections are likely to be seen as buying opportunities, as investors who missed the rally opportunity may increase their exposure to gold..
With the Fed expected to maintain easing bias and the potential for tensions in the Middle East to continue, gold’s appeal as a safe haven asset remains strong. Traders should expect more price strength in the near term, especially if US economic data continues to support a weaker dollar and further cut interest rates.
Gold defies seasonal expectations and continues record high
Gold has risen more than 5% so far in September to be “offseasonally strong,” challenging its historical behavior during the month over the past ten years, according to investors at UBS..
In a note to clients, analysts said that “recent conversations with various market participants” suggest that views towards the yellow metal are growing “with increasing vigour”, although they are not yet fully supported by attitudes.
Many are still waiting for pullbacks to build exposure, but the lack of opportunities is likely to amplify these sharp moves upwards as investors chase prices higher.”
They added that traders generally expect that a slowdown in gold yields “may be possible,” especially if accelerating growth in the United States pushes the Fed to take a “hawkish pivot” that could keep interest rates high and support the dollar. However, they predicted that any decline was likely to be “limited.”
The market may benefit from a break.” “The consolidation period at this point will be healthy for the market, especially if it allows some weak long positions to be liquidated and long-term investors to jump at better levels.”
Gold rose to record highs in Asian trading on Tuesday, extending a streak of recent gains sparked by last week’s rate cut by the Federal Reserve. Sentiment was also boosted by the prospect of further cuts to borrowing costs later this year.
Several Fed officials said on Monday that they support a 50 basis point cut by the central bank, but expect the pace of withdrawals to slow in the coming months. Analysts at Citi said they expect cuts of at least 125 basis points by the end of the year.
Chinese stimulus and US data push gold prices higher
China’s central bank has announced its biggest stimulus package since the pandemic.
aimed at pulling its economy out of a deflationary recession. While this may boost Chinese demand for bullion, it may redirect investments toward Chinese stocks and real estate. The balance between these alternative assets and gold remains a point of consideration for traders.
especially with uncertainty about China’s economic recovery..
Gold rose more than 27% in 2024.
buoyed by the conflict in the Middle East and central bank demand for safe-haven assets. Ongoing tensions between Israel and Hezbollah have also increased gold’s status as a store of value, as Israeli military actions in Lebanon have added to global concerns about a wider conflict..
Upcoming economic data affects the direction of gold
Traders are now focused on upcoming US economic data.
especially Fed Chairman Jerome Powell’s comments on Thursday and personal consumption expenditure data on Friday. These events are expected to provide clarity on the Fed’s expectations for further monetary easing.
as many market participants expect further rate cuts if inflation continues to fall..
Analyst Ricardo Evangelista of ActivTrades noted that if these data releases support the current dovish sentiment.
gold could see further price increases. This follows gold’s 0.5% rise earlier this week, as traders addressed the Fed’s latest moves and geopolitical developments..
The gold market remains in steadily bullish territory, with analysts expecting gains to continue. UBS expects gold to reach $2,700 by mid-2025.
while Citigroup’s Akash Doshi believes prices could head towards $3,000 by mid-2025 if current trends continue..
