Gold $Gold - main 2412(GCmain)$ has been on a quiet yet explosive rally recently, reaching new record highs for the fourth time since April 2023.
On Tuesday, December gold futures peaked at $2,570.40 and closed at $2,552.10, marking a $9.50 or 0.37% increase. The weak dollar remains a key driver behind this surge, with the dollar index dropping 0.49% to 101.35.
Bullish technical patterns and increased safe-haven demand, especially from China, are also fueling gold’s rise.
Cut Rates Once a Month?
Market expectations of a significant shift in the Federal Reserve’s monetary policy are behind the recent gold price jump. Investors are eagerly awaiting the release of the latest FOMC minutes and this Friday’s Jackson Hole economic symposium, where Fed Chair Jerome Powell is expected to provide insights on the timeline for potential rate cuts.
At a July 31 press conference, Powell hinted at a possible 25-basis-point rate cut in September, though he was cautious about a more aggressive 50-basis-point cut. Most analysts and investors now anticipate a rate cut next month, driven by recent economic data showing U.S. inflation trending towards the Fed’s 2% target.
If a September cut occurs, it would signal a broader shift in Fed policy, potentially requiring multiple cuts over the next two and a half years to normalize rates from the current 5.25-5.5% range to a 3.25-3.5% range by 2026. Most economists predict the Fed will cut rates by 25 basis points in each of its remaining three meetings this year.
This shift towards looser monetary policy will have significant impacts on financial markets, with gold being the immediate beneficiary.
SP Angel noted in a morning email:
“With expectations of further dollar weakness, Chinese exporters and traders are buying up RMB and gold. Additionally, following the crackdown on local government bond purchases, Chinese citizens are turning to gold as a preferred savings tool amid a sluggish real estate market.”
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