Gold prices rallied on Tuesday (August 20), reaching a new all-time high, buoyed by a weaker US dollar and growing bets on an aggressive Federal Reserve rate cut. Technical factors, along with some positive news on China’s gold demand, also lent support to the precious metal.
At the close of trading in New York, spot gold rose by $9.50/oz from the previous session’s close, or 0.38%, to $2,514.50/oz, according to Kitco Exchange data. During the session, prices touched a record high of $2,531.60/oz.
As of nearly 8 a.m. Vietnam time, spot gold in the Asian market was up $0.20/oz from the US close, trading at $2,514.70/oz. Converted at Vietcombank’s selling rate, this is equivalent to about VND76 million/troy ounce, up VND100,000 from yesterday’s morning session.
Gold prices climbed as the US dollar index fell sharply and yields on US Treasury bonds also declined, as traders in the futures market increased bets on the Fed opting for a larger cut in the first reduction.
The dollar index, which measures the greenback’s strength against a basket of six major currencies, closed at 101.44 in the US session, its lowest level in nearly eight months. The yield on the 10-year US Treasury note fell to 3.818%.
The market is now certain that the Fed will cut interest rates at its September meeting, and the debate revolves around the magnitude of the first cut.
According to data from the CME’s FedWatch Tool, there is a 67.5% chance that the Fed will cut rates by 0.25 percentage points at its upcoming meeting, while there is a 32.5% chance of a 0.5 percentage point reduction. While still low, the likelihood of a larger cut has increased significantly from 25% the day before.
“The main driver influencing gold prices right now is financial investment demand, especially improved gold buying from ETFs. This is coupled with the belief that the Fed will initiate an easing cycle in September,” said Aakash Doshi, head of precious metals research at Citi, in an interview with Reuters.
Data from SPDR Gold Trust shows that the world’s largest gold ETF has purchased approximately 11 tons of gold in the last ten days. The fund currently holds over 857 tons of gold, slightly down from the seven-month peak of 859 tons recorded on Monday.
According to Doshi’s forecast, gold prices could reach $3,000/oz before mid-2025 and surpass $2,600/oz before the end of this year.
Gold, an asset that typically thrives in a low-interest-rate environment, has risen more than 20% so far this year and is on track to post its strongest year since 2020. “Geopolitical uncertainty, expectations of lower interest rates, and renewed gold buying by ETFs will continue to drive gold’s upward trend,” said Joseph Cavatoni, a strategist at the World Gold Council (WGC), in an interview with Reuters.
According to some experts, there are signs of improving physical gold demand in China, the world’s top gold consumer.
In a report released on Tuesday, brokerage firm SP Angel stated, “Chinese exporters and traders are rushing to buy renminbi and possibly gold as well due to concerns over a potential sharp depreciation of the US dollar,” and “the real estate crisis in China has made gold a favored savings vehicle in the country.”
Several Chinese commercial banks have recently been granted new gold import quotas by the People’s Bank of China (PBOC). This development could boost Chinese gold demand despite high gold prices.
However, the PBOC halted net gold purchases for the third consecutive month in July, and the country’s gold imports also declined sharply in the previous month. Chinese customs data released this week showed that gold imports into China fell 24% year-on-year in July to 44.6 tons, the lowest level in over two years. Gold imports into China had already dropped 58% in June. The record-high gold prices and a subdued domestic economy are believed to be the main reasons for the significant decline in China’s gold imports.
Technically, bulls of gold futures contracts for December delivery hold a significant short-term advantage, according to Jim Wyckoff of Kitco News.
Wyckoff stated that the bulls’ next target is to push gold prices above the strong resistance level of $2,600/oz. Conversely, the bears’ target is to push prices below the solid technical support level of $2,450/oz.
The first resistance level for gold is $2,570.40/oz, followed by $2,600/oz. The first support level is $2,535.10/oz, followed by $2,523.70/oz.
However, Daniel Ghali, a strategist at TD Securities, cautioned that bets on gold’s appreciation may be getting overextended. He warned that if expectations of a 0.5 percentage point rate cut by the Fed in September weaken, gold prices could be in for a swift downward adjustment.
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