Gold nears record high as traders ramp up bets on Fed rate pivot
Gold edged closer to an all-time high as expectations for Federal Reserve rate cuts grow and some traders ramped up bets on a second Donald Trump presidency.
Bullion rose as high as $2,444.06 an ounce, just $6 short of the previous record set in late May. Traders see two quarter-point rate reductions this year – typically benefiting the non-interest bearing precious metal – as inflation cools. A recent uptick in holdings by exchange-traded funds is also aiding upward momentum.
Gold is 18% higher for the year, boosted by anticipation of Fed loosening, as well as significant buying by central banks. Geopolitical tensions have also supported the precious metal, which is traditionally seen as a safe-haven asset.
“Optimism about U.S. interest rate cuts as more economic data supports the case for a Fed pivot is supporting gold,” Ewa Manthey, a commodities strategist at ING Bank NV, said on Tuesday. “Gold is poised to keep its positive momentum going amid the current global geopolitical and macroeconomic landscape, while central bank demand is expected to grow.”
On Monday, Fed Chair Jerome Powell said recent data had given policymakers greater confidence that inflation is heading down to the central bank’s 2% goal.
Traders have been adding bets there will be three cuts this year after Goldman Sachs Group Inc. said conditions were ripe for easing, with “a solid rationale” for officials to lower rates as soon as July.
Gold’s latest rally isn’t necessarily unexpected: in June, consultancy Metals Focus predicted a fresh record this year, while earlier this month Citigroup Inc. said its base case for gold in 2025 was $2,700-$3,000 an ounce.
Trump momentum
Trump’s candidacy gained momentum after a failed assassination attempt over the weekend and a judge dismissed a criminal case against him. The Dow Jones Industrial Average hit an all time high on Monday, while Trump Media & Technology Group Corp. and conservative video-sharing platform Rumble Inc. both jumped.
A Trump presidency could have potentially positive and negative impacts on gold, said Giovanni Staunovo, a commodity analyst at UBS Group AG. It might lead to “tax cuts, supporting a shift to equities, and eventually limiting faster rate cuts,” he said.
On the other hand, tax cuts would impact U.S. fiscal balances, potentially weakening the dollar’s status and pushing buyers toward safe-haven assets such as gold, he said.
Spot gold rose 0.8% to $2,442.65 an ounce by 2:40 p.m. in London. The Bloomberg Dollar Spot Index gained 0.2%, while U.S. 10-year Treasury yields slipped. Silver advanced, while platinum and palladium fell.