- Gold prices are hovering around $2580 per ounce, near record highs, supported by the continued weakness of the US dollar and growing expectations of a significant US interest rate cut by the Federal Reserve this week.
- Fed fund futures indicate that investors increasingly expect a 50-basis point cut, with financial markets estimating a 67% probability, while the chance of a smaller 25 basis point cut is 33%, according to CME's FedWatch tool.
Meanwhile, the Bank of England is widely expected to announce that UK interest rates will remain unchanged. Also, the Bank of Japan is expected to hold rates but signal a willingness to raise them if expectations are met. Elsewhere, gold’s safe-haven appeal has been boosted by some political uncertainty, following reports that Republican presidential candidate Donald Trump faced a second assassination attempt on Sunday.
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As for the factors affecting the gold market, the US dollar price maintains its decline ahead of the Fed meeting. The US dollar index DXY maintained its recent decline at around 100.7, hovering near 14-month lows ahead of the Federal Reserve’s two-day monetary policy meeting, where it is expected to deliver a large cut in US interest rates. Currently, markets are pricing in a 67% chance that the Fed will cut rates by 50 basis points, up from 25% a month ago, while the odds of a modest 25 basis point cut are at 33%, according to CME’s FedWatch tool. The expectations come even after key inflation indicators for August came in hotter than expected last week, although the latest jobs data pointed to signs of a slowing Labor market. Also, investors are looking ahead to US retail sales and industrial production figures for further insights on the economy. Meanwhile, markets remain divided on whether the Bank of England will cut interest rates again this week, while the Bank of Japan is expected to hold steady but signal further rate hikes.
Another factor affecting the gold market, US 10-year Treasury yield rises after retail sales. The yield on the 10-year Treasury note rose to 3.633%, up from its lowest since May 2023, as traders parsed the latest retail sales data ahead of the Fed’s decision. According to the economic calendar, US retail sales rose 0.1% in August, versus expectations for a 0.1% decline. However, sales excluding autos and gas rose less than expected. The data comes as Fed officials begin a two-day meeting to decide how much to cut interest rates, which are currently at a two-decade high of 5.25%-5.5%. They are discussing a 25- or 50-basis-point cut, with the larger cut aimed at preventing further weakness in the Labor market.
According to stock trading platforms, U.S. stocks were little changed on Tuesday, as uncertainty over the size of the expected U.S. interest rate cut mounted. According to trading, the S&P 500 and the Dow Jones ended in muted territory after both hit records, while the Nasdaq rose 0.2%. The two-day Federal Open Market Committee (FOMC) meeting begins today, with traders expecting the Fed to announce its first rate cut since 2020. However, investors remain divided on the size of the cut, with the odds of a large 50-basis-point cut currently standing above 60%. Among the big companies, Nvidia fell 1.1%, while Microsoft rose 0.9% after the company raised its quarterly dividend. In contrast, Intel rose 2.6% after the chipmaker announced a new business partnership with Amazon.
Gold Price Forecast and Analysis Today:
According to the gold index and live prices, the general trend is still upward. Further strong reduction in US interest rates will support the gold price to move to a new historical record level of $2,600 per ounce. However, if there is a smaller reduction in US interest rates, the dollar will recover and accordingly the gold price will be exposed to profit-taking sales. No matter what it reaches, gold will remain supported by global geopolitical tensions and the abandonment of tightening by global central banks.
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