Gold prices hit record highs on anticipation of US interest rate cut

Gold prices increased on Thursday, remaining close to the record high achieved in the previous session. This rise was driven by growing expectations of a US interest rate cut in September, which heightened demand for the precious metal.

Spot gold climbed 0.1% to $2,461.27 per ounce as of 0218 GMT, following an all-time high of $2,483.60 on Wednesday. Concurrently, US gold futures rose 0.2% to $2,465.00.

Factors influencing gold prices

Two immediate factors influencing gold prices are the prospect of decreasing interest rates and the upcoming US elections.

Gold often benefits from economic and geopolitical uncertainty, making it a favourable investment during such times.

Recent observations indicate that holdings of gold in exchange-traded funds (ETFs) have started to increase again after bottoming out in May. This resurgence suggests a potential new wave of demand for gold, particularly from financial advisors and institutions.

Lower interest rates typically enhance the appeal of non-yielding bullion, making it a more attractive investment compared to other assets that generate interest or dividends.

Federal Reserve’s stance on monetary policy

Fed Governor Christopher Waller and New York Fed President John Williams have both highlighted the narrowing horizon towards a looser monetary policy. Richmond Fed President Thomas Barkin expressed optimism about the broadening declines in inflation.

Market expectations, based on CME’s FedWatch Tool, point towards a 25 basis point reduction in interest rates at the Federal Reserve’s September meeting.

US economic activity and future projections

A recent survey by the Federal Reserve revealed that US economic activity expanded at a slight to modest pace from late May through early July. However, firms anticipate slower growth in the coming months.

Citi Research projects that over the next 6-12 months, regardless of the outcome of the US elections, gold prices could rise to between $2,700 and $3,000 per ounce. Silver is also expected to increase, reaching $38 per ounce.

Investors are advised to hedge their equity and currency exposures due to the potential for a global trade war, especially between the US and China. Such conflicts could further boost the demand for precious metals as safe-haven investments.

 Edmund Moy, senior IRA strategist for precious-metals distributor US Money Reserve, said:

June’s cooling inflation and job market may be enough impetus for the Fed to start cutting rates soon, which, if the cuts start, will likely boost gold. And with new data showing China’s economy continues to struggle, Chinese investors have few alternatives — but gold is one of them.

Still, if the Fed remains cautious and wants to see more supportive data before cutting rates, gold prices may see a “short-term negative impact,” Moy said.

Over the medium to long term, however, “most of the factors that drive up gold prices haven’t changed: eventual interest-rate cuts, greater geopolitical instability, China’s struggling economy, and central bank demand for gold,” he said.

Market performance of other precious metals

In addition to gold, other precious metals also experienced gains. Spot silver rose 0.2% to $30.35 per ounce.

Platinum remained steady at $994.81 per ounce, and palladium increased by 0.4% to $955.77 per ounce.

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