Gold Prices Reach All-Time High Amid Rising Rate Cut Expectations

Gold prices reached an all-time high during Asian trading on Friday, fueled by ongoing speculation that the Federal Reserve will implement interest rate cuts in the upcoming week. The demand for gold as a safe-haven asset also intensified due to the tight U.S. presidential election atmosphere.

The price of gold surged on Thursday and Friday, following declines in the value of the dollar and Treasury yields as market participants maintained expectations for an interest rate cut, even amidst stronger inflation data.

Additionally, signs of weakness in the labor market have contributed to these expectations. Gold prices increased by 0.3% to $2,566.59 per ounce, while December futures rose by 0.6% to $2,594.70 an ounce. Earlier in the session, spot gold reached a record high of $2,570.06, with futures nearing $2,600.

Gold Driven by Rate Cut Expectations

The recent gains in gold were a result of investor confidence that the Fed will cut rates during its meeting next week. However, the extent of any potential cuts remains uncertain. Strong inflation figures released earlier this week shifted expectations toward a smaller cut of 25 basis points. Nonetheless, recent soft labor market data revived speculation for a larger cut of 50 basis points. Market traders were pricing in a 58% chance for a 25 basis point decrease and a 42% chance for a 50 basis point reduction.

Despite these mixed signals, analysts expect the upcoming Fed meeting to signal the start of an easing cycle, with a total rate reduction of at least 100 basis points anticipated by year-end. After September, there are only two more Fed meetings scheduled for the year.

Lower interest rates are generally favorable for gold and other precious metals, as they reduce the opportunity cost of investing in non-yielding assets. Other precious metals also saw small gains, although they fell short of gold’s performance. Silver rose by 0.6% to $989.80 per ounce, while platinum increased by 0.6% to $30.280 per ounce.

Copper Gains from China Stimulus Hopes

Industrial metals, including copper, gained traction from the expectation of lower interest rates, which typically signal increased economic activity. Copper prices received additional support from speculation regarding more stimulus measures in China, the world’s largest importer of the metal.

The benchmark copper price on the London Metal Exchange rose by 0.7% to $9,280.00 per ton, while one-month copper futures increased by 0.4% to $4.2260 per pound. A series of weak economic indicators from China has spurred speculation that the government will enact more stimulus measures to support growth. Analysts at Citi have indicated that they foresee "incremental" stimulus measures from China for the remainder of the year.