Gold futures surged to a near-record high, closing just $0.20 shy of $2,660, as investors respond to the Federal Reserve’s recent decision to begin normalizing interest rates. The December contract settled at $2,653.40, rising by $6.30 (0.24%) despite moderate strength in the U.S. dollar.
The Federal Reserve’s unexpected 50-basis-point rate cut has heightened expectations of further monetary easing in the coming months. Investors are closely tracking the Fed‘s moves, with the CME’s FedWatch tool showing a near-even split between predictions of another 50-basis-point cut or a smaller 25-basis-point reduction at the November Federal Open Market Committee (FOMC) meeting.
Anticipation for additional cuts has grown considerably, with the probability of a 50-basis-point reduction in November jumping from 13.1% a month ago to 54.8% today. Federal Reserve officials have hinted at total cuts ranging between 1% and 1.25% by year-end, signaling a shift in the central bank’s monetary policy strategy.
Traders are pricing in several scenarios for the Fed funds rate by December, with the most likely outcome (50.2%) predicting a range of 4% to 4.25%. This marks a notable shift from the aggressive rate hikes implemented since March 2022 to curb inflation.
All eyes are now on the upcoming Personal Consumption Expenditures (PCE) report, due Friday, which is expected to influence the Fed’s next steps. Economists polled by Dow Jones and the Wall Street Journal predict that annual inflation dropped to 2.2% in August, down from 2.5% in July. If accurate, this would indicate significant progress in cooling inflation, which hit a 40-year high in June 2022, reinforcing confidence in the Fed’s ability to meet its 2% target.
A positive PCE report could validate the Fed’s pivot toward addressing the cooling labor market, a key aspect of its dual mandate. With its recent rate cuts, the central bank aims to stimulate economic growth and prevent job losses, contrasting with its previous strategy of combating inflation through higher borrowing costs.
This shift in the Fed’s focus underscores its attempt to engineer a “soft landing” for the economy, balancing inflation control with employment stability. After a rapid series of rate hikes that pushed the benchmark rate from near-zero to over 5% in 18 months, the central bank is adjusting its approach.
Amid these policy changes, gold’s status as a safe-haven asset and inflation hedge continues to attract investors. The precious metal’s record-breaking rally reflects growing confidence in its ability to protect wealth during periods of economic uncertainty and evolving monetary policy.
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