Gold prices reached a record high in Asian trade on Friday, fueled by ongoing speculation that the Federal Reserve will slash interest rates in the upcoming week. The increased safe haven demand in light of the upcoming U.S. presidential election also contributed to the surge in gold prices.
On Thursday and Friday, the price of gold saw a significant increase, following the decline in the dollar and Treasury yields as the market continued to anticipate an interest rate cut despite some stronger inflation data. Weakness in the labor market further reinforced this belief.
Gold rose 0.3% to $2,566.59 an ounce, while gold futures expiring in December rose 0.6% to $2,594.70 an ounce by 23:47 ET (03:47 GMT). Spot gold hit a record high of $2,570.06 earlier in the session, with gold futures nearing a peak of $2,600.
Gold Buoyed by Rate Cut Speculation
The surge in gold prices was driven by investor confidence that the Fed will implement a rate cut during its upcoming meeting. However, there is uncertainty regarding the magnitude of the potential rate cut. While strong inflation data led to expectations of a smaller 25 bps reduction earlier in the week, soft labor market data released on Thursday has reignited bets on a 50 bps reduction.
Analysts anticipate that the Fed’s meeting next week will mark the beginning of an easing cycle, with the central bank expected to cut rates by at least 100 bps by the end of the year. Lower interest rates are favorable for gold and other precious metals as they reduce the opportunity cost of investing in non-yielding assets.
Other precious metals also saw an increase in prices, albeit lagging behind gold. Silver rose 0.6% to $989.80 an ounce, while platinum rose 0.6% to $30.280 an ounce.
Copper Rises on China Stimulus Hopes
Industrial metals, including copper, were boosted by the prospect of lower rates, which signal increased economic activity. Copper prices were also supported by expectations of additional stimulus measures in China, the top importer of the metal.
Benchmark copper on the London Metal Exchange rose 0.7% to $9,280.0 a ton, while one-month copper rose 0.4% to $4.2260 a pound. Weak economic data from China has prompted bets that the country will introduce more stimulus measures to support growth, with analysts from Citi expecting incremental stimulus measures throughout the year.
Overall, the record high in gold prices driven by speculation of a Fed rate cut, along with the rise in other precious metals and industrial metals like copper, reflect the market’s anticipation of economic stimulus measures and their impact on various asset classes. Investors should closely monitor central bank decisions and economic indicators to navigate their investment strategies effectively.
