Gold Hits Record High on Expectations of Fed Rate Cut and Shanghai Futures Exchange Activity
Gold (XAU/USD) surged to an unprecedented peak of $2,482 during Wednesday’s Asian trading session, bolstered by a confluence of factors including anticipations of a forthcoming interest rate reduction by the US Federal Reserve and heightened buying on the Shanghai Futures Exchange (SHFE). Analysts from TD Securities attribute these gains to mounting investor confidence in an imminent policy shift by the Fed and robust demand from SHFE participants.
The prospect of a rate cut by the Federal Reserve has emerged as a primary catalyst for Gold’s bullish trajectory. Lower interest rates diminish the opportunity cost of holding non-yielding assets like Gold, making it a more attractive investment alternative. This sentiment was reinforced following remarks made by Adriana Kugler, a member of the Fed’s Board of Governors, indicating a potential easing of monetary policy later this year.
Kugler’s address at the Peterson Institute for International Economics highlighted concerns over a cooling labor market, suggesting conditions favorable for a rate reduction if economic indicators continue to soften. Recent data showing an increase in the Unemployment Rate, contrary to market expectations, has further fueled expectations of monetary easing aimed at supporting employment and stabilizing inflation around the Fed’s 2.0% target.
Federal Reserve Chairman Jerome Powell’s recent statements have also contributed to market expectations of an impending rate cut, citing progress in addressing inflationary pressures and readiness to act if economic conditions warrant.
Market sentiment has notably shifted, with the CME FedWatch tool indicating a near-certainty of a 0.25% reduction in the Fed Funds rate by September, up from around 60% just a week ago. This change follows disappointing inflation figures for June, which showed a lower-than-expected increase in the Consumer Price Index (CPI) and subdued Personal Consumption Expenditures (PCE) inflation in May.
In addition to Fed policy expectations, TD Securities underscores the significant influence of buying activity on the SHFE, where traders have aggressively accumulated Gold futures and options. According to Daniel Ghali, Senior Commodity Strategist at TD Securities, this resurgence in buying activity from SHFE’s top traders, after a brief hiatus, has propelled Gold prices higher. Ghali notes that over 10 tonnes of Gold have been added to SHFE positions in the past five trading sessions, predominantly through new long positions.
Technical analysis confirms Gold’s breakout from its previous trading range, signaling a continuation of its upward trend. The precious metal’s breach above the $2,451 level has set a new record high and suggests a potential target of $2,555, based on Fibonacci analysis.
As market dynamics evolve amid shifting monetary policy expectations and heightened trading activity, Gold remains poised for further gains, driven by both fundamental factors and technical indicators.
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