Gold Prices Rise, Record Highs Possible Amid Rate Cut Expectations

Gold prices saw a slight increase during Asian trading hours on Wednesday, remaining close to recent record highs as traders awaited clarity on the Federal Reserve’s plans for interest rate cuts.

This week, bullion prices reached record levels amid rising expectations of a 50 basis point reduction in interest rates, which negatively impacted the dollar and Treasury yields. However, stronger-than-expected U.S. economic data complicated predictions for a significant rate cut.

As of 00:16 ET (04:16 GMT), gold prices rose by 0.2% to $2,574.15 an ounce, while silver increased by 0.3% to $2,600.40 an ounce.

Gold prices hovered just below their record high of $2,589.78 an ounce established earlier this week. The predominant support for gold stemmed from increasing belief that the Federal Reserve would announce a rate cut following its meeting later on Wednesday.

Initially, market opinions were divided over whether the Fed would implement a 25 or 50 basis point cut. However, expectations have shifted towards a larger reduction in recent days. Ongoing speculation for a 50 basis point cut remains strong, despite more robust recent economic and inflation data that reflects a degree of resilience in the U.S. economy.

Concerns about a weakening labor market, however, suggest that the Fed may begin an easing cycle, potentially lowering interest rates by at least 100 basis points by the end of 2024. Such reductions would benefit gold and other precious metals, as they decrease the opportunity cost of investing in non-yielding assets.

Other precious metals trail behind gold, with platinum declining 0.5% to $983.90 an ounce and palladium falling 0.5% to $30.837 an ounce.

In the realm of industrial metals, copper prices decreased on Wednesday as markets in China reopened after a long weekend. Traders reacted to disappointing economic data from the country. The benchmark copper price on the London Metal Exchange fell 0.6% to $9,326.50 per ton, while one-month copper dropped 0.9% to $4.2475 per pound.

Weak industrial production and retail sales figures from China, released over the weekend, pointed to ongoing challenges in the country’s key economic sectors, raising concerns that demand for copper could weaken further. However, these disappointing reports also fueled speculation that the Chinese government may need to introduce additional stimulus measures, which could bolster near-term growth and support copper demand. This prospect helped to mitigate overall losses in the copper market.