Key points:
Gold prices remained strong after the U.S. Federal Reserve cut rates by half a percentage point last week.
With further rate cuts expected by the year’s end, gold continues to attract demand, as lower interest rates typically boost the appeal of zero-yield assets like gold.
See: Gold prices hold steady as seen on the VT Markets app.
Traders are split on the size of future cuts, with the CME FedWatch tool showing a 51% chance of another 50-basis-point reduction in November, while a 49% chance of a smaller 25-basis-point cut is also priced in.
The uncertainty surrounding interest rates keeps gold in focus as a hedge against fluctuating monetary policies.
In a lower-rate environment, gold tends to shine, particularly as it offers a safe-haven investment during times of geopolitical strife. The ongoing conflict between Hezbollah and Israel has added another layer of risk to global markets.
The exchange of heavy fire over the weekend, with Hezbollah launching rockets deep into northern Israel, marks one of the largest escalations in nearly a year. This development could further drive gold prices higher if tensions escalate.
The upcoming release of PCE inflation data from the U.S. on Friday will also be closely watched by traders. Inflation figures could influence the Fed’s next move, as inflationary pressures often lead to shifts in monetary policy. Should the data reflect stronger inflation, the Fed might slow down its easing efforts, which could limit further gains in gold.
In case you missed: Gold steady at record levels on central bank moves
Other precious metals have seen declines. Spot silver dipped by 0.2% to $31.06 per ounce, platinum dropped 0.8% to $967.81, and palladium fell 1.3% to $1,053.67 per ounce. These metals often follow gold’s direction, but they can face additional pressure from industrial demand dynamics.
With the Bank of Japan keeping interest rates steady and signalling no rush to raise borrowing costs further, gold could continue to benefit from the global low-rate environment. Traders should keep an eye on developments in the U.S. and Japan as monetary policies evolve, potentially driving further demand for gold as a safe asset.
This week’s inflation data, along with geopolitical developments, will likely set the stage for the next phase in the gold market, with traders looking for confirmation on the direction of U.S. monetary policy and global risk factors.
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