

Market Analysis
Gold (XAU/USD) surged past its previous all-time high, reaching a new record of $2,640 per troy ounce on Tuesday. This rally is largely attributed to growing market expectations of more aggressive interest rate cuts from the Federal Reserve (Fed). Additionally, China's announcement of a substantial stimulus package, which includes interest rate reductions, has contributed to the momentum. Heightened geopolitical tensions in the Middle East are also driving safe-haven demand for the precious metal.
Lower interest rates benefit gold, as they diminish the opportunity cost of holding this non-interest-bearing asset, making it more appealing to investors.
Gold Reaches New Heights Amid Anticipation of Rate Cuts
Gold's rise coincides with market predictions of a possible double 50 basis points (bps) rate cut by the Fed. Current probabilities for a 50 bps cut at the upcoming November meeting are 50.2%, compared to 49.8% for a 25 bps cut, according to the CME FedWatch tool.
On Monday, Fed Bank of Atlanta President Raphael Bostic, a voting member, maintained a neutral stance, earning a score of 4.0 on FXStreet’s FedTracker, which assesses the tone of Fed officials' speeches on a dovish-to-hawkish scale from 0 to 10. In contrast, non-voting Fed Bank of Atlanta President Austan Goolsbee adopted a more dovish perspective, stating that inflation has significantly decreased and that "many more" rate cuts are anticipated. His comments scored a 2.0 on the FedTracker.
Fed Bank of Minneapolis President Neel Kashkari, a non-voting member, also took a neutral position, scoring 3.6 on the FedTracker.
Federal Reserve Governor Michelle Bowman, a voting member known for her hawkish views, is set to speak about the U.S. economic outlook and monetary policy at the Kentucky Bankers Association Annual Convention on Tuesday.
Gold Gains from China's Stimulus Announcement
Gold experienced a rally following the People's Bank of China's (PBoC) announcement of its largest stimulus package since the COVID-19 pandemic. The PBoC aims to combat deflation and bolster the economy to achieve its annual growth target of approximately 5.0%.
Reuters reports that "the broader-than-expected package, which includes increased funding and interest rate cuts, marks the latest effort by policymakers to restore confidence in the world's second-largest economy after a series of disappointing data raised concerns about a prolonged structural slowdown."
The PBoC stated it would reduce the seven-day reverse repo rate, its new benchmark, by 20 bps to 1.5%, lower its medium-term lending facility by 30 bps to 2.30%, and cut the five- and one-year prime rates by 25 to 30 bps. PBoC Governor Pan Gongsheng also revealed plans to lower the reserve requirement ratios (RRR) by 50 bps, potentially freeing up about 1 trillion yuan ($142 billion) for new lending.
Pan added that further reductions in the RRR could occur later this year, depending on market liquidity conditions.
Rising Middle East Tensions Fuel Safe-Haven Demand
Tensions escalated in the Middle East as Israel intensified its bombardment of Hezbollah targets in Lebanon, resulting in over 492 casualties, many of whom were women and children, according to the BBC. In retaliation, Hezbollah struck military targets in Northern Israel.
If the situation deteriorates into a broader conflict, gold prices could see further increases. BBC International Editor Jeremy Bowan suggests that a potential ground operation involving Israeli forces could escalate tensions significantly, creating a more dangerous situation.
Paraphrasing text from "FX Street" all rights reserved by the original author.