Spot gold rose 0.5% to $2,588.29 per ounce at around 1 p.m. Vietnam time, after hitting an all-time high of $2,589.23 per ounce earlier in the trading session. Gold American futures also gained 0.2% to $2,615.80 per ounce.
Traders attributed the low trading volume to the closure of markets in China, Japan, Indonesia, Malaysia, and South Korea for the Mid-Autumn Festival holiday.
The weakening US dollar has made gold more affordable for holders of other currencies. Gold prices surged on expectations that the US Federal Reserve (Fed) will aggressively cut interest rates.
Alex Ebkarian, CEO of Allegiance Gold, opined that gold’s appeal is increasing as expectations of rate cuts grow. He also suggested that instead of making a large cut, the Fed may act gradually. The market is pricing in a 55% chance of a 25-basis point rate cut and a 45% chance of a 50-basis point reduction in the coming days.
Gold prices may continue to rise
According to experts, with the current developments, gold prices could continue to climb. If the US dollar continues to weaken, gold prices could reach $2,700 per ounce by the end of this year. Tim Waterer, a leading market analyst at KCM Trade, stated that the prospect of a possible 50-basis point rate cut by the Fed this week has caused gold and the US dollar to move in opposite directions.
Marc Chandler, CEO of Bannockburn Global Forex, mentioned the speculations about a 50-basis point cut by the Fed. “Gold is hitting new record highs, seemingly supported by the prospect of lower rates and a weaker USD,” he said. Chandler added that gold is in uncharted territory with little resistance. “Psychologically, $2,600 is appealing,” he further stated.
Mark Leibovit of VR Metals/Resource Letter anticipated that gold would peak around the time of the Fed meeting. Similarly, Darin Newsom, a senior analyst at Barchart, believed that precious metals would continue to rise as investment funds flowed in until the end of last week.
However, some are more cautious. Daniel Pavilonis, a senior commodities broker at RJO Futures, suggested that prices might pause as they have “gotten a little ahead of themselves.” According to him, gold will drop when the Fed announces its rate decision.
Pavilonis argued that the ideal scenario would be a 25-basis point cut by the Fed, as a higher cut could spark deflation concerns about the US economy. “I think a 50-point cut is a bit concerning at this point. We’re facing some big economic issues, and gold trading at $2,600 is high,” he commented.
In addition to the Fed’s rate decision, other events this week could also impact the precious metal, including monetary policy announcements from the Bank of England and the Bank of Japan on September 19.
Looking ahead, analysts believe that several factors influence gold prices. According to Pavilonis, another crucial factor driving the recent rally in precious metals is the US election and the potential for political unrest. “I think the biggest driver of higher gold prices is geopolitics,” he stated.
The Unpredictable Nature of Exchange Rates: What’s the Impact on Businesses?
In the context of the US dollar’s depreciation over the past two months, there is a possibility that the foreign exchange risk scenario could turn around in the future. Additionally, the unpredictable volatility of the Japanese yen also warrants attention.
