Fed rate cuts fuel gold price gains
The Fed's aggressive 50 basis point interest rate cut has reignited bullish sentiment towards gold. Traders had largely expected a 25 basis point cut, but a larger cut has changed expectations and reignited demand for safe haven assets. Moreover, the market is now expecting a further rate cut in November, which could provide further support for gold as lower interest rates reduce the opportunity cost of holding non-yielding assets such as gold.
The continued weakening of the US dollar on expectations of continued interest rate cuts has made gold cheaper for holders of other currencies, increasing its attractiveness to international investors.
Geopolitical tensions and central bank demand drive gold prices higher
Gold's price movements were further supported by rising geopolitical tensions, especially in the Middle East, where Hezbollah's threats of retaliation against Israel following recent clashes in Lebanon kept markets on edge and drove investors to safe-haven assets.
With the conflicts in Gaza and Ukraine remaining unresolved, gold continues to act as a hedge against global uncertainty. Additionally, demand from central banks and ETFs continues to grow, further tightening physical supplies and adding upward pressure on prices.
Key economic data awaited
Despite gold's strong performance this week, traders are growing increasingly cautious as they await key U.S. economic data next week. Core PCE inflation, the Fed's preferred inflation measure, is due to be released and will be closely watched for signs of abating inflationary pressures.
If the data shows that inflation remains high, the Fed may not be as aggressive in its next rate cut, potentially weakening the current bullish momentum. Additionally, an upcoming speech from Fed Chairman Jerome Powell will be crucial in indicating the direction of the central bank's future policy.
