Gold prices kicked off the new trading week on Monday morning (Sept. 16) with a slight increase, continuing the upward trend from the previous week and maintaining its record-high level of nearly USD 2,600 per ounce. Analysts predict that the upcoming meeting of the US Federal Reserve (Fed) this week could cause fluctuations in gold prices, but no matter how much the Fed cuts interest rates, the potential for long-term price increases for the precious metal remains high.
As of 9 a.m. local time, the spot gold price in the Asian market rose by USD 3.9 per ounce compared to Friday’s close in New York, equivalent to a 0.15% increase, trading at USD 2,582.6 per ounce. According to Vietcombank’s selling exchange rate, this price is equivalent to VND 76.9 million per tael.
Last week, global gold prices rose more than 3% as the US dollar weakened and markets increased bets that the Fed would cut interest rates significantly during its two-day meeting on Sept. 17-18. Currently, gold prices are at their highest level ever and have set more than 30 records since the beginning of the year.
According to the latest data from the FedWatch Tool of the CME trading floor, the interest rate futures market is betting on a 59% chance that the Fed will choose to cut interest rates by 0.5 percentage points by the end of Wednesday. The bet for a 0.25 percentage point cut has decreased to 41%.
In an interview with Kitco News, Adam Button, chief strategist at Forexlive.com, predicted that gold prices would continue to rise this week, although there could be a dip if the Fed only cuts rates by 0.25 percentage points. “There’s no reason to fight this rally. In the case of a 25-basis-point cut, gold could be sold off hard. But buyers will appear before it gets to $2,500,” said Button.
Senior broker Daniel Pavilonis of RJO Futures believes that the upward momentum of gold prices has been overstretched in the short term, even though gold still has strong drivers to increase in the remaining months of this year. “I think gold prices will start to level off. This is the price range the market wants, but this price is too high compared to the moving average. So I think gold prices will have to fall back to a more realistic trend range,” said Pavilonis.
According to the broker, gold prices may fall before the Fed announces its interest rate decision. “I think there will be some investors taking profits. Gold prices could fall back to the range seen about two weeks ago… After that, investors will wait to see what the Fed does,” he said.
Looking at the longer term, Brien Lundin, editor of Gold Newsletter, told MarketWatch that gold is a “hedge against all ‘weather conditions'” regardless of the Fed’s decision in the upcoming meeting. Mr. Lundin said that global investment portfolios are increasingly allocating more capital to gold because gold “has a position to appreciate well whether the Fed slowly cuts rates or is forced to cut rates in an emergency in the event of a US economic recession.”
“In my opinion, the lesson here is that gold has established its position as a hedge against all ‘weather conditions’ no matter what happens next,” said Lundin.
Joe Cavatoni, senior strategist at the World Gold Council (WGC), said that gold prices have not yet reflected the potential impact of the Fed’s interest rate cut, so a rate cut move “could boost upward pressure on gold prices in the coming weeks, and this will be reflected in the long-term increase in investor demand for gold.”
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