Gold rallies to new record high early Monday, extending the rally that began after last week’s Federal Reserve interest rate cut.
The yellow metal topped $2,600 an ounce last week on the rate cut, expectations for more reductions to come and escalating tensions in the Middle East. Interest rate cuts are typically considered bullish for gold, which become more attractive alternate investments when rates go down. The precious metal is also a traditional hedge against uncertainty, both geopolitical and economic.
Investors will be awaiting additional direction from the Fed’s favorite inflation indicator, which is due out Friday, as well as a number of comments this week from Fed officials including Chairman Jerome Powell.
Front-month gold futures rose 1.4% last week to settle at $2,646.20 an ounce on Comex after the most-active December contract added 1.2% Friday. Bullion is up 4.7% this month after advancing 2.2% in August and increasing 5.7% in July, its biggest monthly gain since March. The metal rose 13% in 2023.
The yellow metal climbed last week after the 50-basis-point rate cut to 4.75% to 5.00%. It was the central bank’s first rate reduction since the pandemic. The Fed had kept rates at 5.25% to 5.50% for a year after raising them by 5.25 percentage points since March 2022 to rein in inflation. The December contract is currently up $5.9 (+0.22%) an ounce to $2652.10 and the DG spot price is $2630.60.
All investors tracked by the CME FedWatch Tool agree that the Fed will likely cut rates again in November, though they’re almost evenly divided on whether to expect another 50 basis point reduction or just a 25 basis point one. Most expect rates to drop to 4.00% to 4.25% or lower by the end of 2024. The Fed has said it closely looks at both inflation and labor market data when crafting monetary policy.
The personal consumption expenditures price index, the Fed’s favorite inflation measure, is due out Friday with August data and will provide the latest measure on whether inflation is continuing to slow. Consumer sentiment for August is also due out Friday.
Three Fed regional bank presidents – from Atlanta, Chicago and Minneapolis – are scheduled to speak Monday and will likely provide further direction on policymakers’ thinking. Fed Governor Michelle Bowman is scheduled to speak Tuesday, when consumer confidence data for September and the S&P Case-Shiller home price index for July are due out. Powell is scheduled to speak Thursday, along with a slew of other Fed officials. U.S. weekly initial jobless claims also come out Thursday.
Powell said in a news conference following last week’s rate cut that no one should assume that 50 basis points “is the new pace” for reductions.
In addition to economic news, gold and precious metals got some support from rising tensions in the Middle East after Hezbollah hit back on Israel over the weekend with a barrage of rockets, declaring an “open-ended battle.” Israeli attacks in Lebanon in the past week have killed dozens of people with air strikes. Officials around the world say Israel was also most likely responsible for an attack that caused thousands of pagers and walkie-talkies in Lebanon to explode a few days earlier, causing fatalities and injuries, including of civilians.
Front-month silver futures increased 1.4% last week to $31.51 an ounce on Comex after the December contract advanced 0.3% Friday. Silver is up 8.1% this month after gaining 0.7% in August and dropping 2.1% in July. It ticked up 0.2% in 2023. The December contract is currently down $0.340 (-1.08%) an ounce to $31.165 and the DG spot price is $30.94.
Spot palladium rose 0.7% last week to $1,088.00 an ounce, though it fell 1.5% Friday. Palladium is up 11% in September after increasing 3.2% in August and decreasing 4.3% in July. Palladium plummeted 38% last year. Currently, the DG spot price is down $22.10 an ounce to $1066.00.
Spot platinum dropped 2% last week to $984.20 an ounce after falling 1.4% Friday. Platinum is up 5.7% this month after sliding 5.2% in August and losing 2.1% in July. Platinum dropped 6.8% in 2023. The DG spot price is currently down $17.50 an ounce to $968.40.
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