Gold (XAU) Price Forecast: Super-Sized Fed Rate Cut Could Spark Rally Above $2,600

Gold Prices Hover Near Record High as Traders Eye Fed Decision

Gold prices edged higher on Wednesday after hitting a record high of $2,589.72 on Monday, as the market awaits the Federal Reserve’s interest rate decision, due later today at 18:00 GMT. Investors are highly focused on whether the Fed will deliver a significant 50-basis-point (bp) rate cut, which could provide further momentum for gold.

At 10:57 GMT, XAU/USD is trading $2576.53, up $6.94 or +0.27%.

Fed Rate Cut Speculation Driving Gold Higher

Expectations of an aggressive Fed rate cut have risen sharply in recent days, with the market now pricing in a 63% chance of a 50-bp reduction, according to CME Group’s FedWatch tool. Just a week ago, the probability stood at 34%. This shift was fueled by media reports suggesting the Fed may take more decisive action to support the economy. Should the Fed announce the anticipated 50-bp cut, gold prices could surge past $2,600 per ounce, with projections ranging between $2,649 and $2,661.

Gold tends to benefit in low interest rate environments, as reduced yields on competing assets like bonds lower the opportunity cost of holding non-yielding bullion. A 50-bp cut could also signal a dovish stance for future policy, further supporting gold’s potential climb toward $3,000.

Geopolitical Tensions Adding to Safe-Haven Demand

In addition to Fed policy, geopolitical developments are bolstering safe-haven demand for gold. On Tuesday, Hezbollah threatened retaliation against Israel following attacks in Lebanon that resulted in multiple casualties. This escalation of tensions in the Middle East increases the risk of broader conflict, driving investors towards safe assets like gold. Market analysts note that these geopolitical risks could continue to support gold prices in the short term.

Central Bank and ETF Demand Supporting Gold

Goldman Sachs reiterated its bullish outlook for gold, maintaining a price target of $2,700 by early 2025. The investment bank cites central bank demand and growing inflows into gold-backed exchange-traded funds (ETFs) as key drivers. ETF demand, in particular, has risen in recent weeks, as Western capital increasingly seeks exposure to physical gold. This trend reduces available supply and adds further upward pressure on prices.

Market Forecast: Bullish if Fed Delivers 50-bp Cut

If the Fed delivers a 50-bp rate cut today, gold prices are likely to extend their rally beyond $2,600 per ounce, with a bullish outlook for the remainder of the year. However, if the Fed opts for a more modest 25-bp cut, there may be short-term disappointment, potentially triggering profit-taking and a pullback towards $2,531. Nonetheless, strong underlying demand from central banks and ETFs should provide long-term support.

Traders should brace for heightened volatility around the Fed announcement, with further U.S. economic data, including housing starts and existing home sales, also in focus for clues on the broader economic outlook.