Gold at record high as rate cut bets fuel demand

Gold prices rose to an all-time peak on Wednesday, driven by mounting hopes of a US interest rate cut in September after recent comments from Federal Reserve officials.

Spot gold was steady at $2,468.55 per ounce, as of 0456 GMT, after hitting a record peak of $2,482.29. US gold futures gained 0.3 per cent to $2,474.50.

“Gold reached a new high watermark as investors position for the arrival of a lower interest rate environment. The $2,500 (range) is the next immediate target, though if the current momentum can be sustained we could be looking at prices further north from here before year-end,” said Tim Waterer, KCM Trade’s chief market analyst.

“Particularly, if we start seeing some more favourable US CPI prints, which could make the Fed more dovish on rates than is already priced in.” Markets are expecting a rate cut of at least 25 basis points by the Fed at its September meeting. The allure of non-yielding bullion tends to rise when interest rates fall.

Fed Chair Jerome Powell said on Monday recent inflation readings “add somewhat to confidence” that the pace of price increases is returning to the central bank’s target in a sustainable fashion, remarks that suggest a turn to rate cuts may not be far off.

Fed Governor Adriana Kugler on Tuesday also expressed cautious optimism that inflation is returning to the US central bank’s 2 per cent target. “If gold prices retrace, $2,450 near its previous record high seems like a tempting level for bulls to reload for its next leg higher,” City Index senior analyst Matt Simpson said.

Top consumer China still has plenty of appetite for official gold purchases despite pausing in May and June, as its bullion holdings remain low as a share of reserves and geopolitical tensions persist, according to a policy insider, industry experts and data.

Spot silver fell 1.1 per cent to $31.04 per ounce, platinum was flat at $999.91 and palladium added 0.8 per cent to $967.06.

Gold hit a record and bonds rallied on Wednesday as markets prepared for global interest rates to fall, while stocks in Taiwan slipped after US presidential candidate Donald Trump sounded lukewarm in his commitment to the island’s defence.

Sterling ticked higher after British inflation held at 2 per cent year-on-year in June against forecasts for 1.9 per cent, with services inflation stuck at an uncomfortable 5.7 per cent.

FTSE futures rose 0.2 per cent and S&P 500 futures traded 0.2 per cent lower after the cash index made a record high on Wednesday.

MSCI’s broadest index of Asia-Pacific shares outside Japan was flat and Japan’s Nikkei fell 0.4 per cent. In Taiwan, chipmaker TSMC fell 3 per cent, wiping out close to $30 billion in market value, after Trump questioned US support in an interview with Bloomberg Businessweek, saying Taiwan should pay for US protection.

It was unclear exactly what Trump was planning, however his selection of trade hawk J.D. Vance as his running mate had already put markets on notice that China will figure heavily in his foreign policy thinking.

Chinese stocks were subdued for a second day running.

The Taiwan dollar slipped slightly to a two-week low. China’s yuan steadied at 7.2673 per dollar as markets waited on news from a leadership meeting in Beijing which ends on Thursday.

“It is more and more clear to me that Trump should be bullish for USD for at least a while,” said Brent Donnelly, president at analytics firm Spectra Markets, as he is expected to impose tariffs and run a higher budget deficit.

“It’s hard to imagine USDCNH ending 2024 below 7.25 on a Trump victory in November but it’s not hard to imagine it closing above 7.50,” he said, referring to the dollar-yuan pair.

Elsewhere in the technology sector ASML, the largest equipment supplier to chipmakers, reported better-than-expected second-quarter earnings and shares were indicated as opening higher.

In Asia, New Zealand shares hit their highest since March 2022 after data showed inflation slowing, though the rates market dipped and the currency rose on sticky domestically driven inflation.

Treasuries held gains that had pushed 10-year US yields to four-month lows overnight after Federal Reserve Chair Jerome Powell said recent cooling in inflation readings “add somewhat to confidence” that consumer prices are coming under control.

Fed funds futures have fully priced a US rate cut for September, followed by two more before the end of January 2025.