Gold prices surged to a new all-time high of $2,586 per ounce on Friday, driven by expectations of a larger-than-anticipated interest rate cut by the U.S. Federal Reserve. As the U.S. Dollar weakened, the non-yielding metal continued its upward momentum, with analysts suggesting that gold could potentially reach the $3,000 mark. At the time of writing, XAU/USD was trading at $2,582, reflecting a gain of nearly 1%.
The rise in gold prices follows increasing speculation of a 50-basis-point (bps) rate cut by the Federal Reserve. According to CME’s FedWatch Tool, the probability of a half-percentage-point cut jumped from 27% to 43% after an article by The Wall Street Journal’s Fed watcher Nick Timiraos and comments from former New York Fed President William Dudley. Meanwhile, expectations for a smaller 25 bps cut have decreased from 73% to 57%.
This heightened speculation led to a drop in U.S. Treasury yields, which in turn undermined the U.S. Dollar. The U.S. Dollar Index (DXY), a measure of the currency’s strength against six major counterparts, fell by 0.15% to 101.09.
Gold’s rally is expected to continue as demand remains strong. Global gold ETFs saw inflows for the fourth consecutive month in August, according to data from the World Gold Council.
Adding to market optimism, the University of Michigan’s Consumer Sentiment Index for September showed improvement over August, with inflation expectations dipping, further supporting speculation of Federal Reserve rate cuts.
