So here we are again. The chatter around a major rate cut by the Fed has re-emerged, giving gold bulls yet another reason to power the yellow metal to new heights.
In early Friday trading, gold prices jumped to a fresh all-time high, fueled by renewed speculation that the Federal Reserve is poised to slash interest rates next week. Spot gold (XAU/USD) was trading at $2,567.41 per ounce by 08:45 GMT, setting the stage for what could be a monumental shift in the market.
The rally comes hot on the heels of Thursday’s surge, with bullion tracking sharp declines in both the dollar and Treasury yields. Despite stronger-than-expected inflation data, the market remains glued to the possibility of a rate cut. Adding fuel to the fire were Thursday’s jobless claims, which threw soft labor market conditions into the spotlight. Traders have now priced in a 58% chance for a 25 basis point cut, while the odds of a bolder 50 basis point reduction have climbed to 42%, according to the CME FedWatch tool.
Analysts are bracing for next week’s Federal Reserve meeting to officially kick off the long-anticipated easing cycle, with predictions that rates could drop by a full 100 basis points before 2024. And with two more Fed meetings on the calendar after September, the outlook for further reductions looms large.
For gold and other non-yielding assets, the story is simple: lower interest rates mean fewer opportunity costs, making bullion an even more attractive safe haven for investors seeking to hedge against economic uncertainty.
Update at the close: Gold bulls continued their charge as bets for a 50 bps increase rose to 50%, according to the CME FedWatch tool. As a result, gold hit a record high of $2,584 before closing at $2,578.
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