The hope of a cut in interest rates reduces the opportunity cost of owning gold, since it does not earn interest, and puts pressure on the dollar, making the gold metal, priced in dollars, more affordable for investors.
The gold prices They continue to climb to new all-time highs, registering their fifth rise so far this month. This rise occurs after the United States Federal Reserve announced its intention to carry out three additional interest rate cuts by 2024, despite concerns about rising inflation.
In the market, spot gold rose 1.1% to $2,209.65 an ounce, hitting a record high of $2,222.39 during the session. Meanwhile, US gold futures rise 2.4%standing at $2,212.40.
Carsten Menke, analyst at Julius Baer, points out that the bullish momentum is triggered by the Fed’s comments, which confirm its intention to reduce rates in the United States. This optimistic mood prevails in the gold futures market.
Gold, dollar and interest rates
Although the latest figures indicate high inflation, the president of the Fed, Jerome Powellsays the central bank is still likely to cut rates by three-quarters of a percentage point by the end of 2024, depending on additional economic data.
CME Group’s FedWatch tool shows that federal funds futures traders now consider there is a 74% probability that the Fed start cuts in Junecompared to 60% prior to the entity’s decision.
As a result of these announcements, the dollar falls to one-week lows against other currencieswhile the yield on the 10-year US Treasury bond also declines.
The decrease in interest rates reduces the opportunity cost of owning gold, since it does not generate interest, and puts pressure on the dollar, making the gold metal, priced in dollars, more affordable for investors using other currencies.
As for other precious metals, spot silver experienced a slight drop of 0.4%, settling at $25.51 per ounce; platinum increases 0.6%, reaching $912.10; while palladium fell 0.9%, standing at $1,012.22.
Source: Ambito
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