Key points:
On Friday, gold breaks to new highs over the expectation of central banks following the Fed’s example worldwide.
This precious metal shot to a new high after the Fed’s decision to slash borrowing costs by 0.50% on Wednesday.
As they say in trade, the “trend is your friend,” and technically, Gold is in a strong uptrend in all time frames.
Gold breaks to a new record high near $2,610 on Friday against growing expectations that global central banks will follow the Fed into policymaking and rate cuts. Lower interest rates are positive for gold because they reduce the opportunity cost of holding the non-interest-paying asset and, therefore, make it more attractive to investors.
Following the Fed’s decision last Wednesday, the SARB on Thursday cut its key interest rate by 25 bps, its first cut since the Covid pandemic in 2020. Meanwhile, the Central Bank of the Philippines at its meeting on Friday cut interest rates by 250 bps to 7.0%. The RBI is now also widely expected to join in with rate cuts in sympathy with the Fed when it next meets.
The People’s Bank of China, though, did leave its key lending rates unchanged at the September fixing on Friday, it did shave its one and five-year loan prime rates to record lows of 3.35% and 3.85%, respectively, after a surprise cut in July. The Bank of Japan did not change rates at its meeting on Friday, despite some speculation of a rate hike in the offing.
Gold surges above previous record highs
It was breaking above the previous record highs set on Wednesday of $2,600 after the Fed’s decision. This meeting had the US central bank go for interest rates cuts of double-dose 50 pbs or 0.50%.
Upside for the yellow metal was capped, however, by the Fed’s broadly positive outlook for US growth, which the central bank saw remaining stable at about 2.0% per year until the end of 2027. That suggested a “soft landing” profile for the economy, which is broadly positive for sentiment. This probably did prove negative for the safe-haven Gold, though. Thus, the precious metal fell sharply and quickly lower after it reached its peak.
Still, greater geopolitical risk aversion could be invoking supportive safe-haven flows at the same time: Israel’s use of exploding pagers and walkie-talkies to kill and injure agents of Hezbollah in Lebanon has increased the danger of an escalation in the Mideast conflict that could support the precious metal.
