Gold prices soared to record highs in Asian trading on Wednesday, continuing their recent upward trajectory fueled by growing expectations that the Federal Reserve will cut interest rates in September.
Spot gold prices increased by 0.2%, reaching a record high of $2,478.65 per ounce, while August gold futures also hit a record, climbing to $2,483.65 per ounce.
Gold Buoyed by Rate Cut Expectations
The recent gains in gold are primarily driven by optimism surrounding potential interest rate cuts by the Federal Reserve. Softer consumer price index inflation data and dovish signals from the Fed have led traders to anticipate a rate cut in September.
According to CME’s FedWatch tool, traders are now pricing in over a 90% chance of a 25-basis point cut in September, with a small possibility of a 50-basis point reduction. The likelihood of the Fed maintaining current rates is no longer considered.
Federal Reserve Chair Jerome Powell stated this week that the Fed is increasingly confident that inflation is easing. He also indicated that the central bank does not need to wait for inflation to hit the 2% target before beginning to cut rates.
Further supporting the rate cut expectations, muted retail sales data released on Tuesday suggested a cooling U.S. economy, even though the figures slightly exceeded expectations.
Lower interest rates are favorable for gold and other precious metals as they reduce the opportunity cost of holding these assets. Consequently, the dollar has dropped to over a one-month low on the prospect of lower rates, providing additional support to precious metal prices.
Other precious metals also experienced gains in response to the weaker dollar. Platinum futures rose by 0.1% to $1,016.80 per ounce, while silver futures increased by 0.3% to $31.543 per ounce.
