Bullion on the rise: Gold takes centre stage amidst Fed rate cut

Gold prices surged over 1% to hit a record high today, driven by the anticipation of an impending interest rate cut by the Federal Reserve following signs of a slowing US economy.

In early trading in New York, spot gold increased by 1.6%, reaching US$2,551.19 per ounce. Concurrently, US gold futures rose by 1.4%, settling at US$2,578.90. Thai gold selling prices were quoted in the afternoon at 40,250 baht (US$1,210) per baht-weight (15.2 grammes).

The US Labour Department reported that initial claims for state unemployment benefits rose by 2,000, adjusting seasonally to 230,000. Additionally, US producer prices experienced a slightly higher-than-expected increase in August due to elevated service costs, though the overall trend indicated easing inflation, said Alex Ebkarian, chief operating officer at Allegiance Gold.

“We are headed towards a lower interest rate environment, making gold much more attractive. I think we could see more frequent cuts rather than larger ones.”

Market expectations, as reflected by the CME FedWatch tool, currently indicate an 87% probability of a 25-basis-point rate cut during the Federal Reserve’s meeting on September 17 and 18, with a 13% likelihood of a 50bps cut.

The Bangkok Post reported that in a low-interest-rate climate, zero-yield gold becomes a favoured investment choice.

“The labour market continues to falter, and if it deteriorates further, the rate-cutting journey could extend over a prolonged period,” said Phillip Streible, chief market strategist at Blue Line Futures.

In related news, gold prices in Thailand have taken a nosedive, plummeting by 2,000 baht per baht weight in just over a month. This dramatic drop is attributed to the Thai baht’s impressive 7% rise during the same period. The Gold Traders Association (GTA) warns that prices could fall further if the baht continues to strengthen.

Jitti Tangsithpakdi, President of the GTA, explained that while global gold prices hover around US$2,520 per ounce, domestic prices have been heading in the opposite direction.