Gold Prices Increase, Eyeing Record Highs Amid Expectations of Smaller Rate Cuts

Gold prices experienced an uptick in Asian trading on Thursday, approaching record highs as investors anticipated that the precious metal would thrive in a lower interest rate environment. However, optimism for a substantial interest rate cut by the Federal Reserve waned significantly following the release of core consumer price index inflation data, which exceeded predictions for August. Consequently, traders adjusted their positions for a smaller, 25 basis point reduction later in September, a sentiment that bolstered the dollar and capped gold’s gains.

Spot gold rose 0.2% to $2,516.88 an ounce, while December futures increased 0.1% to $2,544.55 an ounce as of 00:36 ET (04:36 GMT). Currently, spot gold is trading just below its record high of $2,532.05 an ounce, having come remarkably close to this benchmark earlier in the week. The yellow metal has seen a surge in safe haven demand recently, especially amidst growing fears of a U.S. recession impacting risk-driven markets.

On Wednesday, market sentiment shifted as traders reduced expectations for a 50 basis point rate cut when the Federal Reserve meets next week, with a more modest 25 basis point reduction now anticipated. Persistent inflation diminishes the likelihood of the Federal Reserve implementing significant interest rate cuts.

In anticipation of the Fed’s meeting, markets are also bracing for further inflation data set to be released later on Thursday. Nevertheless, the potential for lower interest rates still favors gold and other precious metals, as this environment decreases the opportunity cost of investing in non-yielding assets. Additionally, silver rose 0.4% to $961.85 an ounce, while platinum also climbed 0.4% to $29.047 an ounce.

In the industrial metals sector, copper prices edged higher on Thursday, recovering some recent losses due to expectations of increased stimulus in China, the world’s largest copper importer, following a series of disappointing economic indicators. The benchmark price on the London Metal Exchange increased 0.4% to $9,180.0 a ton, while one-month contracts rose 0.3% to $4.180 a pound.

Weaker economic data from China has pressured copper prices over the past week, raising concerns about a slowdown that may dampen copper demand. Furthermore, copper imports into China have declined for three consecutive months. However, these challenges have sparked hopes for additional stimulus measures by the Chinese government. Analysts from Citi recently noted that further interest rate cuts and mortgage refinancing initiatives are likely to be implemented to support slowing growth and bolster local demand.