Gold price hits another record high as US rate cut expectations rise

Gold prices surged to unprecedented heights on Tuesday, breaking the $3,650 barrier for the first time in history as anticipation of a Federal Reserve rate cut this month fuelled demand for the precious metal.

At the time of writing, gold futures climbed 0.3% to $3,687.30 per ounce, while the spot price of gold rose over 1% to $3,647.53 a troy ounce, after hitting a record high of $3,659.10 earlier in the session.

“We probably will see more upside in gold from here provided that the US central bank delivers with regards to market expectations of seeing multiple rate cuts,” KCM Trade chief market analyst Tim Waterer said.

The rally in gold comes amid growing expectations of an interest rate reduction from the US Federal Reserve. Traders are pricing in an 89.4% chance of a 25-basis-point rate cut at the Fed’s upcoming meeting, according to CME Group’s FedWatch tool. There is also a 10.6% probability of a more aggressive 50-basis-point cut.

Gold’s price has more than doubled in the last three years, driven by an increase in geopolitical, economic, and trade risks, all of which have spurred demand for safe-haven assets.

The metal has also benefitted from US president Donald Trump’s vocal criticism of the Fed, which has raised concerns about the central bank’s independence. Trump recently pledged to “secure the majority, very soon” at the Fed, pushing for further rate cuts to stimulate the economy.

Adding to the uncertainty, investors are awaiting a historic ruling on whether Trump has legal grounds to dismiss Federal Reserve board member Lisa Cook, potentially paving the way for a new appointment more sympathetic to easing monetary policy.

As central banks ease monetary policy and rates remain low, gold becomes more attractive due to its status as a non-yielding asset. Lower interest rates also weigh on the US dollar and bond yields, making bullion a more attractive investment.

Goldman Sachs (GS) said last week hat the price of gold could surge to as much as $5,000 per ounce if the independence of the Federal Reserve comes into question and investors shift a portion of their Treasury holdings into the precious metal.

Oil prices climbed in early European trading, recovering some of last week's losses, after producer group Opec+ opted for a modest output hike and investors priced in the possibility of more sanctions on Russian crude.

Brent (BZ=F) crude futures rose 0.8% to trade at $66.21 per barrel at the time of writing, while West Texas Intermediate (CL=F) futures climbed by 1% to $62.91 a barrel.

On Sunday, eight members of the Organisation of the Petroleum Exporting Countries (Opec) and their allies, collectively known as Opec+, agreed to raise production by 137,000 barrels per day starting in October. This increase is a significant slowdown compared to previous months — in August and September the group had boosted production by around 555,000 barrels per day, and in July and June it was 411,000 barrels per day. The move is also smaller than many analysts had expected.

Although the new output hike represents just a fraction of global supply, it marks a clear shift in strategy for Opec+, which had previously been focused on restraining production in an effort to bolster prices.

The October move “marks the reversal of cuts that were set to remain in place until the end of 2026, following the rapid return of the previous tranche of idled barrels over recent months,” said Daniel Hynes, senior commodity strategist at ANZ, in a client note on Tuesday.

The decision signals a change in approach for the oil group, which had previously imposed cuts to production in response to a sharp decline in global demand during the pandemic. However, as oil prices have remained relatively stable, Opec+ seems to be pivoting towards a more cautious approach, scaling back its earlier production restraint.

The potential for further sanctions on Russian crude is also keeping investors on edge. The ongoing conflict in Ukraine has led to a complex web of sanctions, which could further affect oil flows and, in turn, global oil prices.

The British pound strengthened against a weaker US dollar on Tuesday morning, as expectations of a dovish Federal Reserve surged following the release of August's Nonfarm Payrolls (NFP) data, which revealed cracks in the US labour market.

Sterling rose by 0.2% to $1.3572 against the greenback, while also climbing by the same margin to €1.1533 against the euro. Meanwhile, the US dollar index (DX-Y.NYB), which measures the greenback against a basket of six currencies, lost 0.1% to 97.37.

Markets are now pricing in a near-certain rate cut by the Federal Reserve at its upcoming meeting, with some traders also factoring in a 10% chance of a more substantial 50 basis-point reduction. The dovish expectations were largely spurred by the NFP report, which pointed to signs of weakening in the US labour market, leading investors to anticipate a shift in monetary policy.

In contrast, the Bank of England (BoE), which is set to meet next week, is not expected to cut rates anytime soon. Despite the UK economy showing signs of slowing, inflation remains well above the BoE's 2% target, and there are no clear indications of a more serious downturn. As such, markets have largely priced out the possibility of any significant rate cuts from the central bank for the remainder of 2025.

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Last week, BoE governor Andrew Bailey repeated the need to unwind the central bank’s restrictive monetary policy, citing risks in the labor market. In his testimony before the Treasury Committee, Bailey said that while there was “doubt over the pace of interest rate cuts,” the general trend would be “downwards.”

The contrasting policy outlooks between the Federal Reserve and the Bank of England have contributed to the pound’s strength against the dollar, as traders position themselves for a potentially more dovish Fed and a more cautious BoE in the months ahead.

In equities, the FTSE 100 (^FTSE) was higher on Tuesday morning, up 0.1% to trade at 9,238 points. For more details, on market movements check our live coverage here.

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