Gold prices have surged to record highs, driven by a weakening US dollar and expectations of significant interest rate cuts by the US Federal Reserve. On Monday, US gold futures rose by 0.2%, reaching $2,615.80, marking a new all-time high.
Several factors have contributed to this rise in gold prices:
- Weaker US Dollar: A 0.2% decline in the dollar has made gold more affordable for holders of other currencies, boosting demand. The inverse relationship between the dollar and gold is a key factor, as a weaker dollar makes gold a more attractive asset globally.
- Expectations of Federal Reserve Rate Cuts: The upcoming Federal Reserve meeting on September 17-18 has fueled speculation about a larger-than-expected interest rate reduction, possibly as much as 50 basis points. Lower interest rates reduce the opportunity cost of holding non-yielding assets like gold, further driving demand.
- Global Uncertainty and Thin Trading Conditions: With holidays in major markets like China, Japan, and South Korea, trading conditions have been thin, adding volatility to gold prices. Moreover, global uncertainty, especially around inflation and economic stability, has made gold a safe-haven asset.
- Anticipation of Other Central Banks’ Decisions: In addition to the Federal Reserve, the Bank of England and the Bank of Japan are set to announce their policy decisions this week, adding to market uncertainty and supporting gold prices.
Will Gold Prices Rise Further Ahead of Diwali?
Market analysts believe that conditions remain favorable for gold, with further gains likely. Tim Waterer, chief market analyst at KCM Trade, noted that the prospect of the Federal Reserve delivering a significant rate cut has pushed gold higher. If the dollar continues its downward trajectory, gold could reach $2,700 by the end of the year.
Diwali traditionally sees a rise in gold demand in India, driven by cultural and religious practices. This seasonal boost, coupled with favorable global conditions, could keep prices elevated. However, much will depend on the Federal Reserve’s actions and broader market conditions in the weeks leading up to the festival.
