Gold Price Reaches New Heights as Fed Hints At Interest Cuts Later This Year
The price of gold has hit a fresh all-time high amid comments by Federal Reserve Chair Jerome Powell that interest rate cuts will arrive after inflation is under control.
At the time of writing, an ounce of gold was trading at $2,285 on the spot market after dropping by 0.55%. The current price is a slight drop from the record high of above $2,300 that the commodity achieved earlier this week.
Precious metals benefit from a diverse range of factors that help drive prices, the main one being optimism that the Fed will trim interest rates this year.
Fed Optimism on Rate Cuts Leads to Strong Gold Prices
On Wednesday, officials at the US Federal Reserve, including Chair Jerome Powell, said there was a need for more discussions and economic data before a decision is made to trim interest rates. Financial markets anticipate that the Fed will start trimming rates in June. This move will be a major reversal after the institution aggressively increased rates to tame inflation levels that had surged to a 40-year high.
According to the CME Fed WatchTool, there is a 59% chance that the Fed will lower interest rates in June. The precious metal tends to gain when interest rates are low, which explains the recent growing demand. US non-farm payrolls will be released on Friday, shedding more light on the economic situation and the direction the Fed will take during the next Federal Open Market Committee (FOMC) meeting.
With the US Federal Reserve trimming interest rates, other central banks are expected to follow suit, leading to a stronger gold price as demand continues to rise.
Geopolitical Tensions Are Also Helping Drive Gold’s Price
Aside from the optimism surrounding the Fed’s rate cuts, geopolitical tensions in regions such as Asia and Europe are also contributing to the rise in gold prices. The ongoing conflicts, such as the Russia-Ukraine war and the threat of broader conflict in the Middle East, are driving investors towards safe-haven assets like gold.
Recent escalations, such as the attack at a Moscow concert and tensions between Israel, Hamas, and Iran, have further increased the demand for gold as a hedge against uncertain geopolitical situations.
As tensions persist and escalate in these regions, the demand for gold is expected to remain high, pushing prices even higher in the short term.
Weakening US Dollar Drives Gold Prices
A weakening US dollar is also playing a role in the surge of gold prices. Dollar-denominated assets tend to increase in value when the USD weakens, and recent economic reports indicating a weak ISM services PMI and rising Treasury Yields have contributed to the dollar’s decline.
Despite the brief climb in 10-year US Treasury Yields, the anticipation of the Fed’s policy changes has kept demand for gold strong even in a scenario where interest-bearing assets typically perform better.
With a combination of factors such as Fed policy changes, geopolitical tensions, and a weakening US dollar, gold is likely to continue its upward trend in the near future.
