Gold Vaults to Record High as Fed Signals Rate Cuts

21 Mar 2024 , 10:09 AM

On Thursday, gold prices surged to an unprecedented high, propelled by a decline in the U.S. dollar and bond yields following the Federal Reserve’s decision to maintain its projection of three rate cuts for the year.

The allure of gold heightened as lower interest rates diminished the opportunity cost of holding non-yielding bullion and exerted downward pressure on the dollar, rendering gold more affordable for investors holding alternative currencies. Spot gold witnessed an uptick of 0.8%, reaching $2,203.84 per ounce, subsequently peaking at an all-time high of $2,222.39 earlier in the session. Concurrently, U.S. gold futures surged by 2.1% to $2,206.30.

The Federal Reserve opted to keep interest rates unchanged on Wednesday; nevertheless, policymakers signaled their intent to decrease rates by three quarters of a percentage point by the conclusion of 2024. Fed Chair Jerome Powell underscored that recent spikes in inflation had not altered the fundamental narrative of gradually moderating price pressures in the United States.

This confluence of marginally elevated inflation expectations and lower nominal rates has fostered a favorable environment for gold prices, according to Kyle Rodda, a financial market analyst at Capital.com. He highlighted a period of subdued sentiment in the market preceding a resurgence in bullishness driven by the dovish stance of the Fed, a squeeze on existing short positions, and a momentum-driven uptick.

Market sentiment regarding the Fed’s monetary policy stance shifted, with Fed funds futures traders now pricing in a 75% likelihood of rate cuts commencing in June, up from 59% on Tuesday, according to the CME Group’s FedWatch Tool. Concurrently, the dollar depreciated to a one-week low against its counterparts, while benchmark U.S. 10-year Treasury yields exhibited a decline.

Tim Waterer, chief market analyst at KCM Trade, emphasized the role of Federal Reserve Chair Powell’s commitment to retaining the possibility of three potential rate cuts this year in influencing the downturn in bond yields and the dollar, consequently paving the way for an upward trajectory in gold prices.

In tandem with gold’s ascent, spot silver increased by 0.4% to $25.70 per ounce, platinum rose by 0.8% to $914.25, and palladium climbed by 1.2% to $1,034.