Gold Price Surge to $2,520: Fed Rate Cut Speculation and Geopolitical Tensions Propel Gains

Gold (XAU/USD) has maintained its bullish momentum, currently trading near $2,517 after reaching an intraday high of $2,520.02.

The price has surged, setting a new all-time high, driven by expectations of a dovish Federal Reserve and continued selling pressure on the US dollar. These factors have significantly bolstered gold’s appeal as an investment, particularly as a safe-haven asset amid ongoing global uncertainties.

However, optimism surrounding a potential ceasefire in Gaza and a slight recovery in the US dollar, which had hit its lowest level since January, have capped further gains in gold.

Fed Rate Cut Expectations Drive Gold Prices Higher

The anticipation of Federal Reserve rate cuts has been a key driver behind the recent rally in gold prices. Investors are widely expecting the Fed to reduce interest rates by 25 basis points (bps) during its September meeting.

This expectation has put downward pressure on US Treasury yields and the US dollar, contributing to gold’s new record high.

According to the CME Group’s FedWatch Tool, there is currently a 70% chance of a September rate cut.

Additionally, a Reuters poll indicates that a slim majority of economists now predict a 25 bps cut at each of the remaining three meetings in 2024.

However, Fed Governor Michelle Bowman has cautioned that inflation remains above the Fed’s 2% target, which may temper expectations of aggressive rate cuts.

This combination of factors has further fueled the rise in gold prices, making it an increasingly attractive investment.

China’s Gold Import Quotas and Rising SPDR Holdings Boost Demand

In addition to the impact of Federal Reserve policies, China’s recent actions have also supported the upward momentum in gold prices. The People’s Bank of China (PBOC) has granted new gold import quotas to several Chinese banks, signalling expectations of increased demand.

This move suggests that China may be preparing for another significant round of gold purchases.

Furthermore, the holdings of SPDR Gold Trust, the world’s largest gold-backed exchange-traded fund, have risen to 859 tons, the highest in seven months.

This increase indicates growing investment demand for gold, reflecting a broader trend of investors seeking safe-haven assets in uncertain economic times.

These developments have further bolstered global demand for gold, contributing to its recent price surge.

Geopolitical Tensions Continue to Drive Safe-Haven Demand

Geopolitical tensions, particularly in the Middle East, have played a crucial role in supporting gold prices as well. The ongoing conflict between Israel and Hamas has kept investors on edge, driving demand for safe-haven assets like gold.

Despite ongoing efforts for a ceasefire, the conflict has resulted in significant casualties, with over 40,000 people killed in Gaza and more than 1,100 in Israel since October 7.

This heightened geopolitical risk has led to increased investor interest in gold, further boosting its price. As uncertainty in the region persists, the demand for gold as a secure investment is likely to remain strong.

Gold Price Outlook

GOLD Price Chart - Source: Tradingview

The pivot point at $2,508.27 is critical, serving as a key support level for the ongoing uptrend.

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ABOUT THE AUTHOR See More
Arslan Butt
Index & Commodity Analyst
Arslan Butt serves as the Lead Commodities and Indices Analyst, bringing a wealth of expertise to the field. With an MBA in Behavioral Finance and active progress towards a Ph.D., Arslan possesses a deep understanding of market dynamics.His professional journey includes a significant role as a senior analyst at a leading brokerage firm, complementing his extensive experience as a market analyst and day trader. Adept in educating others, Arslan has a commendable track record as an instructor and public speaker.His incisive analyses, particularly within the realms of cryptocurrency and forex markets, are showcased across esteemed financial publications such as ForexCrunch, InsideBitcoins, and EconomyWatch, solidifying his reputation in the financial community.
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