In a remarkable turn of events, gold prices have exploded to unprecedented levels, hitting new record highs in both intraday trading and at the close. The December gold futures contract hit a staggering intraday high of $2,570.40 and eventually closed at $2,552.10, representing a daily gain of $9.50 or 0.37%. This is the fourth consecutive day since April 2023 that gold prices have surpassed their previous record highs. Dollar weakness continues to be a key factor driving gold prices dramatically higher. The dollar fell 0.49% today, pushing the index to 101.35.
The driving force behind this remarkable rise in gold prices, as well as the recent dollar weakness, is the growing expectation of a major shift in Federal Reserve monetary policy. Investors are eagerly awaiting the release of the minutes from the latest FOMC meeting, as well as Chairman Jerome Powell’s highly anticipated speech at the Jackson Hole Economic Symposium next week. These events are expected to provide deeper insights into the central bank’s plans for future interest rate adjustments.
During his July 31 press conference, President Powell indicated that a 25 basis point rate cut was very likely at the September FOMC meeting, but tempered expectations of a more aggressive 50 basis point cut. That view may also be echoed by Federal Reserve Bank of Atlanta President Raphael Bostic, who will participate in a “fireside chat” later today.
The market’s perception of the Federal Reserve’s impending policy change is a key factor in the current rise in gold prices. While a September rate cut is considered a certainty, there is much speculation among analysts and investors about the wider scope of the central bank’s plans. Earlier this year, the Fed’s “dot plot” suggested a total of three quarter-percentage-point rate cuts in 2024, but the June revision suggested a more conservative approach, expecting only one or two cuts.
Importantly, recent economic data suggests that inflation is on a downward trend and in line with the Federal Reserve’s 2% target. This has led to a significant shift in market expectations, with investors closely watching for signs of a major monetary policy shift.
The expected September rate cut is not an isolated incident, but rather a sign of a broader change in the Federal Reserve’s stance. Officials are now focused on normalizing interest rates, which will require several rate cuts over the next two and a half years to bring the benchmark rate down from its current high level of 5 1/4% to 5 1/2% to a range of 3 1/4% to 3 1/2% by 2026.
This view is shared by a majority of economists surveyed by Reuters News, who expect the Federal Reserve to cut interest rates by 25 basis points at each of its remaining three meetings this year. The impending shift from very tight to very loose monetary policy is likely to have far-reaching consequences for financial markets, with the price of gold at the forefront of this dynamic transition.
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