The Fed began cutting interest rates after inflation eased. It also plans to cut rates by another half-point this year, a full point in 2025 and another half-point in 2026, potentially extending gold’s rally.
Interest in gold continues to rise and reaches record levels in 2024. Investors hoping for more interest rate cuts from the Federal Reserve are driving up prices for the metal, which is trading above its all-time high on Thursday. Since breaking out at the beginning of this year, gold prices have climbed more than 25%. Spot gold had hit a record high of $2,600 on Wednesday.
And the Fed’s massive rate cuts are driving the rally in gold, which does not generate returns.
Gold prices rose more than 1% on Thursday after hitting another record high in the previous session as the US Federal Reserve began its rate-cutting cycle. Spot gold rose 1.1% to $2,620 per ounce, while US gold futures rose 0.5% to $2,611.50.
The Fed kicked off an early round of interest rate cuts with a larger-than-usual half-percentage point reduction in a move meant to demonstrate policymakers’ commitment to keeping unemployment low now that inflation has eased. In addition, Fed officials projected the benchmark interest rate will fall another half-percentage point by the end of this year, a full point next year and a half-percentage point in 2026.
Gold: what data is the market analyzing?
“The prospect of further rate cuts makes gold attractive and new record prices cannot be ruled out,” said Alexander Zumpfe, a precious metals trader at Heraeus Metals Germany.
Lower interest rates reduce the opportunity cost of holding bullion, which does not earn interest. The $2,600 level proved too high a hurdle for now, given how quickly gold prices rose in anticipation of the Fed’s September taper, said Adrian Ash, director of research at Bullionvault.
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“There is plenty of room for the gold bull market to continue to run as real cash yields fall heading into the election and into the new year 2025.”
Spot gold rose 3.5% to $31.12 per ounce, after hitting its highest level since July in the previous session. “We maintain our view that silver will benefit from a rising gold price environment,” UBS said in a note.
“Our forecast that the silver market will remain in deficit over the next few years implies a continued decline in available inventories, which should help fundamentally support prices as well as act as a boost to investor interest.” Platinum is up around 2% at $987.71 and palladium is up 2.1% at $1,084.
Source: Ambito
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