Gold hovers near all-time high as soft US data boosts rate cut bets

Gold prices advanced to $3,650.23 per ounce, nearing record highs and set for a fourth consecutive weekly gain, propelled by heightened expectations of multiple Federal Reserve interest rate cuts. Deteriorating U.S. labor market data, including surging jobless claims, has solidified forecasts for a 25 basis point Fed rate reduction on September 17, bolstering gold's appeal in a lower-yield environment. Analysts, observing increased exchange-traded fund flows, project gold to reach $3,900/oz by mid-next year, with other precious metals also experiencing significant gains.

Analysis

Gold prices are demonstrating significant strength, rising 0.5% to $3,650.23 per ounce and approaching the all-time high of $3,673.95. The metal is on track for its fourth consecutive weekly gain, contributing to a year-to-date rally of approximately 39%. This bullish momentum is primarily fueled by firm market expectations of multiple interest rate cuts by the U.S. Federal Reserve, a sentiment solidified by recent economic data showing weekly jobless claims surging to their highest level since October 2021. A Reuters poll indicates near-unanimous consensus among economists for a 25 basis point rate cut on September 17. Supporting this outlook, UBS analysts have cited increased flows into exchange-traded funds and political pressure for lower rates as tailwinds, leading them to forecast a price target of $3,900 per ounce by mid-next year. The positive sentiment extends across the precious metals complex, with silver rising 1.7% to a 14-year high, and both platinum and palladium also posting weekly gains.

Key Decisions for Investors

• Given the strong upward momentum and consensus on impending Fed rate cuts, investors may consider maintaining or initiating long positions in gold, while noting the price is near an all-time high.
• The investment thesis is highly contingent on monetary policy, so closely monitor the Federal Reserve's September 17 announcement for both the rate decision and any forward guidance on future easing.
• Consider diversifying exposure across the precious metals sector, as the concurrent rally in silver to a 14-year high, alongside gains in platinum and palladium, suggests a broad-based trend.
• Investors should remain vigilant of key risks, as conflicting data such as the rise in consumer prices or a hawkish surprise from the Fed could counter the prevailing low-rate narrative and unwind the rally.