Gold (XAU/USD) surged to a new all-time high, surpassing previous records to reach the $2,680s per troy ounce on Thursday. This remarkable increase is attributed to falling global interest rates, escalating conflicts in the Middle East, and a weakened U.S. Dollar (USD) driven by heightened expectations of continued aggressive monetary easing by the U.S. Federal Reserve (Fed).
Record Highs Amid Economic Shifts
The recent rally saw gold breaking through historic barriers, fueled in part by decisions from the People’s Bank of China (PBoC), the Swedish Riksbank, and the Central Bank of the Czech Republic, all of which have cut interest rates in recent days. Such moves diminish the opportunity cost of holding non-yielding assets like gold, making the precious metal more appealing to investors.
The ongoing conflict between Israel and Hezbollah also adds to gold’s appeal as a safe-haven asset. On Wednesday, amidst ongoing missile exchanges, the head of the Israeli Defense Forces, Herzi Halevi, warned troops in northern Israel to prepare for a potential ground offensive into Lebanon. An escalation of military action could heighten risk aversion and lead to increased demand for gold.
Market Expectations for Fed Rate Cuts
Despite stronger-than-anticipated U.S. New Home Sales data and robust Mortgage Applications, which suggest the economy may not be heading for a hard landing, markets continue to factor in a potential 50 basis point (bps) rate cut from the Fed during its November meeting. The upcoming Labor market data, particularly Jobless Claims due out Thursday, could further influence the USD and gold prices.
According to the CME FedWatch Tool, the probability of a significant 50 bps cut remains above 60%, overshadowing the likelihood of a smaller 25 bps reduction. This scenario continues to exert downward pressure on the U.S. Dollar, providing additional support to gold, which is predominantly priced in USD.
Recent data revealed a concerning decline in consumer sentiment, with the Conference Board Consumer Confidence Index falling to 98.7 in September from an upwardly revised 105.6 in August, significantly missing consensus estimates. Labor market worries highlighted by survey respondents contributed to this dip in confidence.
Additionally, gold’s strength may be bolstered by dovish remarks from Fed Governor Adriana Kugler, who is a voting member. Her comments were rated a 3.2 on FXStreet’s FedTracker, which evaluates the tone of Fed officials’ speeches on a dovish-to-hawkish scale.
Market participants are keenly awaiting remarks from Fed Chairman Jerome Powell, scheduled for Thursday, as his statements could further shape expectations regarding Fed policy and, consequently, impact gold prices.
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