Gold prices soar to new all-time high on Fed rate cut bets; silver sees slight uptick

Gold prices have reached unprecedented heights, buoyed by optimism surrounding Federal Reserve rate cuts and geopolitical developments, causing a slight uptick in silver as well.

Short Summary:

• Gold prices near record high amid Fed rate cut expectations.
• Trump’s growing presidential bid contributes to dollar resilience.
• Silver and other precious metals see varying levels of gains.

Global gold prices have soared to a new all-time high, driven by rising bets that the U.S. Federal Reserve will soon cut interest rates. Spot gold surged 0.2% to $2,427.77 per ounce during Asian trade on Tuesday, with futures for August delivery climbing by 0.1% to $2,432.30 an ounce. The value of the precious metal now inches closer to its previous peak of $2,450, recorded in late May.

Inflation data has bolstered the market’s expectation of a September rate cut, which has fueled gold’s climb. The U.S. Federal Reserve Chair Jerome Powell added to the speculation, stating that the central bank has gained more confidence in inflation declining towards the 2% target. Traders are almost entirely betting on a 25 basis point rate cut in September, with a 90% probability reflected in the CME Fedwatch tool. Dovish signals from the Fed, coupled with soft inflation readings, have invigorated the gold market.

Conversely, the dollar’s strength has somewhat capped gold’s momentum. Supported by speculation of a Donald Trump presidency resulting from a failed assassination attempt, the greenback has rebounded from its recent lows. Market predictions suggest that Trump’s return to the White House could lead to more protectionist trade policies, influencing inflation and sustaining the dollar’s strength.

While gold enjoyed substantial gains, other precious metals displayed mixed outcomes. Silver futures climbed 0.2%, while platinum futures fell by 0.3%. Copper prices, a benchmark for industrial metals, exhibited steadiness amidst concerns about China’s economic health, reflecting a nuanced picture within the commodity market.

Bloomberg noted that gold reached a record $2,462.54 per ounce at its highest, surpassing the late May high. Ewa Manthey, a commodities strategist at ING Bank NV, remarked:

“Optimism about U.S. interest rate cuts as more economic data supports the case for a Fed pivot is supporting gold. Gold is poised to keep its positive momentum going amid the current global geopolitical and macroeconomic landscape, while central bank demand is expected to grow.”

This view is echoed by increased holdings from central banks and strong consumer appetite in China. The geopolitical tensions and the growing likelihood of rate cuts have enhanced gold’s appeal as a haven asset. Goldman Sachs Group Inc. recently highlighted the ripe conditions for easing and forecast multiple rate reductions within this year, starting as early as July.

Refined predictions by consultancy Metals Focus envisage a fresh record for gold prices this year. Citigroup Inc. also supports this bullish outlook, projecting gold to reach between $2,700-$3,000 per ounce by 2025.

Investor sentiment regarding Trump’s potential presidency has also had a profound impact on markets. Giovanni Staunovo, a commodity analyst at UBS Group AG, stated:

“A Trump presidency could lead to tax cuts, supporting a shift to equities and eventually limiting faster rate cuts. However, tax cuts would also impact U.S. fiscal balances, potentially weakening the dollar’s status and pushing buyers toward safe-haven assets such as gold.”

Alongside gold, spot silver advanced 1.1%, reaching $31.85 per ounce, and further surged to $32.17, marking an over 11-year high. This movement in silver was paired with minimal changes in platinum and palladium prices, which shifted slightly upwards.

Moreover, U.S. economic data last week has solidified the belief that the Federal Reserve will implement consecutive rate cuts this year. Persistent downward trends in consumer prices indicated that inflation might be softening earlier than expected, reinforcing predictions for a September rate cut.

Traders’ anticipation of the Federal Reserve’s monetary easing has catalyzed a broad market rally, with bond yields and the dollar tamed, effectively promoting risk assets. Daniel Pavilonis, a senior market strategist at RJO Futures, stressed:

“Inflation is sticky; we may see some whipsaws in the inflation data, but also the burdening debt in the U.S.—there is a cause to be diversified away from that too. So it’s this perfect storm that’s kept the market elevated in gold.”

Heightening the rally’s momentum is increased participation from non-traders and retail investors, who now seek to buy into gold futures or take physical delivery, according to Pavilonis. This influx underscores the market’s fear of missing out (FOMO) on gold’s impressive run.

Adding to the precious metal’s strength is China’s recent set of historic measures aimed at stabilizing its beleaguered property sector. These steps include the central bank facilitating an additional $138 billion in funding and easing mortgage rules, which have bolstered market confidence.

Geopolitics continues to influence gold prices, with heightened risk aversion following the death of Iranian President Ebrahim Raisi in a helicopter crash, as noted by Kitco Metals analysts. This incident underscores the broader dynamics of geopolitical tensions that support gold as a safe-haven asset.

Despite the soaring prices, physical gold purchases in top consumer markets such as China and India have seen a dip due to increased premiums and discounts offered by dealers. Nevertheless, the underlying global backdrop remains bright, with the anticipation of U.S. rate cuts fostering an environment conducive to risk assets.

As the global economic landscape navigates through fiscal policies, geopolitical anxieties, and market sentiments, gold and other precious metals will likely continue their dynamic trends, influenced by the evolving interplay of these factors.