Gold News: Bullion Hits New Peak on Weak Dollar and Fed Speculation

Gold Prices Surge to Record High as Fed Rate Cut Speculation Intensifies

Gold prices soared to a new record on Friday, driven by growing expectations that the Federal Reserve may deliver a larger-than-expected interest rate cut next week. As traders boosted bets on a 50-basis point reduction, the dollar weakened, making gold more attractive to investors.

Technically, old resistance at $2531.77 is expected to be new support. If it fails then the safety net for bullish traders will be the uptrending 50-day moving average at $2457.14.

At 11:07 GMT, XAU/USD is trading $2567.35, up $8.69 or +0.34%.

Dollar Weakens, Gold Shines

The U.S. dollar slipped 0.4%, benefiting gold prices as a weaker greenback typically increases the appeal of bullion to holders of other currencies. Traders are now pricing in a 41% chance of a 50-basis point rate cut, up sharply from 14% just a day ago. Reports from the Financial Times and Wall Street Journal have fueled speculation that a half-point cut is still possible, contrary to earlier expectations of a more modest 25-basis point cut.

The shift in sentiment comes after comments from former New York Fed President Bill Dudley, who suggested there is a strong case for a larger cut. The potential for lower interest rates has sparked a rally across several asset classes, including gold, stocks, and U.S. Treasury bonds. Gold, in particular, saw its strongest weekly gain since mid-August, climbing nearly 3.0% to reach $2,573 per ounce.

Global Interest Rates Support Gold Rally

In addition to the Federal Reserve speculation, the European Central Bank (ECB) cut interest rates this week, reinforcing the bullish case for gold. Lower interest rates typically boost demand for non-yielding assets like gold, especially during periods of geopolitical uncertainty. Adrian Ash, research director at Bullionvault, noted that beyond central bank buying from emerging markets, speculative trading in derivatives is also playing a significant role in gold’s recent ascent.

Retail Demand Lags Amid High Prices

However, the surge in prices has led to reduced physical demand for gold in key Asian markets. Retail buyers are shying away, forcing dealers to offer substantial discounts to lure customers. Hugo Pascal, a precious metals trader, suggested that while prices could reach $3,000 by 2025, this would likely require renewed demand from China, coupled with fear of missing out (FOMO) driving speculative buying.

Short-Term Gold Prices Forecast

Looking ahead, gold’s bullish momentum appears set to continue, fueled by a combination of dollar weakness, lower global interest rates, and investor anticipation of a Fed rate cut. If the Federal Reserve opts for a 50-basis point reduction, gold could push beyond its current record high.

However, if the central bank sticks to a 25-basis point cut, some cooling in gold prices may occur. For now, the outlook remains bullish, with the potential for further gains in the short term. Traders should watch for developments in U.S. economic data and any shifts in Fed rhetoric.