Gold prices (GC=F) 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.
