Gold (XAU/USD) is trading in the $2,570s on Wednesday, with the financial markets keenly awaiting the Federal Reserve’s policy announcement scheduled for 18:00 GMT.
Gold Prices Surge on Fed Rate Cut Speculation Gold reached an all-time high of $2,589 earlier this week, driven by increasing market speculation that the Fed might implement a substantial 0.50% interest rate cut at its upcoming meeting. A significant rate reduction would benefit gold by diminishing the opportunity cost of holding the non-interest-bearing asset, making it more appealing to investors.
Gold Retreats After Retail Sales Report The precious metal experienced a pullback on Tuesday following the release of US Retail Sales data, which showed a modest 0.1% increase in August, down from a 1.0% rise in July. Despite this being better than the revised consensus expectation of a 0.2% decline, it still contributed to gold’s downward movement.
Futures Markets Predict High Probability of Rate Cut According to the CME FedWatch tool, there is a 61% probability of a 0.50% rate cut, based on the pricing of 30-day Fed Funds futures. The chance of a smaller 0.25% cut stands at 39%, with a 100% certainty that the Fed will implement some form of rate reduction.
In an interview with Bloomberg News, Ray Dalio, CIO of Bridgewater Associates, suggested that the Fed’s decision will aim to balance the needs of creditors seeking real yields with the desire to reduce interest payments for debtors. Dalio proposed that a 25 basis point cut would be appropriate from a broader perspective, but given the severe impact on mortgage rates, a 50 basis point cut might be more suitable.
Dalio also noted that the US economy is nearing equilibrium, barring issues related to debt and socio-economic factors like political polarization, which could also influence the Fed’s decision.
Additionally, the Fed’s Summary of Economic Projections (SEP), which accompanies the policy statement, will be closely watched. The SEP outlines anticipated future interest rate paths and economic forecasts, and any deviations from previous projections could trigger market volatility and impact gold prices.
