Market Analysis

Due to declining global interest rates, geopolitical concerns, and dovish Fed bets, gold continues to rise

Amos Simanungkalit · 26 Sep 2024204K Views

Gold (XAU/USD) edges slightly higher in the $2,660s per troy ounce on Thursday, driven by declining global interest rates, heightened tensions in the Middle East, and a weaker US Dollar (USD). The dollar’s softness is linked to increased expectations that the US Federal Reserve (Fed) will maintain its aggressive monetary easing stance.

Gold Nears Record Highs
Gold is trading close to its all-time high of $2,670, reached on Wednesday. Recent interest rate cuts by the People’s Bank of China (PBoC), Swedish Riksbank, and the Central Bank of the Czech Republic have boosted the appeal of gold by reducing the opportunity cost of holding the non-yielding asset, making it more attractive to investors.

The ongoing conflict between Israel and Hezbollah adds further upside momentum. On Wednesday, amid escalating missile exchanges, Israeli Defence Forces Chief Herzi Halevi instructed troops in northern Israel to brace for a potential ground offensive into Lebanon. Should such an invasion occur, it would likely escalate risk aversion and boost safe-haven demand for gold.

Gold Gains Amid Expectations of a 50 bps Fed Rate Cut
Despite stronger-than-expected US New Home Sales data for August and solid Mortgage Applications on Wednesday, markets are still anticipating a 50 basis point (0.50%) interest rate cut from the Federal Reserve in its upcoming November meeting. Jobless Claims data, set to be released on Thursday, could influence both the USD and gold prices, with labor market data likely playing a critical role.

The CME FedWatch tool shows that market expectations for a larger 50 bps rate cut remain above 60%, compared to a smaller 25 bps cut. This sustained pressure on the USD continues to provide a tailwind for gold, which is priced and traded in USD.

Further fueling gold's rally is the drop in consumer confidence. On Tuesday, data confirmed a sharp decline in the Conference Board Consumer Confidence Index, which fell to 98.7 in September from a revised 105.6 in August, missing consensus forecasts. Concerns over the labor market were a key factor in the dip.

Additionally, dovish remarks from Fed Governor Adriana Kugler on Wednesday may have supported gold prices. Kugler’s comments were rated 3.2 on FXStreet’s FedTracker, a tool that assesses Fed officials’ speeches on a dovish-to-hawkish scale.

Fed Chairman Jerome Powell is scheduled to speak later on Thursday, which could influence market sentiment regarding Fed policy and, by extension, the outlook for gold prices.