Gold Price News : The gold market remained very active following the surge of spot prices to a new high of $2,589 per ounce and Comex gold price to a fresh peak of $2,616.50 per troy ounce in Monday’s trading session. The spot gold price was around $2,585 an ounce on Tuesday morning. The Indian market too witnessed Multi Commodity Exchange’s gold rates touch a two-month high, once again reflecting the global trend of surging gold prices.
The reason for this increase? Experts in commodity markets say that the prevailing market guesswork over a 50 bps cut by the US Federal Reserve is pushing up gold prices. That put pressure on both the US dollar and the yields of US Treasuries, and triggered a rally in the gold market. Market experts, however, warn that the US Fed decision to be released soon is very important for the future of the precious metal: sharp price movements are likely to happen as a consequence.
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What is in store for the Gold Price in case of a US Fed Rate Cut?
This week may see the rate decision by the US Federal Reserve. Many investors and market participants are keenly observing the central bank to find out whether it would indeed cut rates by 50 basis points, as most had already anticipated. That itself presents a pretty good reason why the gold price starts shooting up.
The market is heavily focused on the prospects of the US Fed rate cut steepening. Expectations of a 50 bps rate cut have already exerted downward pressure on the US dollar and US Treasury yields, inversely related to gold prices. Investors will remain in a ‘wait-and-watch’ mode awaiting the outcome of the Fed’s decision,” said Anuj Gupta, Head of Commodity and Currency, HDFC Securities.
Any hint of a steeper rate cut from the US Federal Reserve would likely push gold prices even higher,” Gupta adds. As a safe-haven asset, gold tends to edge higher when the dollar weakens or when interest rates fall, as both factors make gold more attractive to investors to hedge against market volatility.
Gold Price Market Pauses Ahead of Fed Decision
Experts say the rally in gold prices has temporarily halted as investors remain waiting for some form of clarity on what the Federal Reserve will do next. Some strategists at IG Markets note that though gold prices surged into a higher range on expectation of the occurrence of a more aggressive rate cut, “now people are more cautious.”.
“The rally in gold prices has taken a breather in today’s session,” Yeap said. He explained that after recent gains, investors are being cautious because they are waiting further for guidance from policymakers regarding the Federal Reserve’s rate decision. Any sign of hesitation on the part of the central bank could spark volatility in the gold market.
The halt in the rally may not necessarily mean it’s falling, but rather a consolidation process in wait for direction on what to do from the Fed meeting. For now that the price of gold has already been so high, the next moves of the Federal Reserve will determine if the precious metal continues its rise.
Key Levels of Focus within the Gold Market
Experts say, as the market looks forward to the US Fed decision, key price levels have been outlined that have been closely followed by investors. According to Anuj Gupta of HDFC Securities, gold has formed a strong support base at the level of $2,560 per ounce in the international market. Should the Federal Reserve announce the expected 50 bps rate cut, Gupta expects the spot gold price to go even higher while reaching $2,640 per ounce.
The MCX gold prices in the Indian market are also rising. Gupta feels that MCX gold has strong support at ₹72,000 per 10 grams, and he feels if the Federal Reserve indeed delivers what the speculators expect – a rate cut, the price could touch ₹74,000 per 10 grams. These are important markers both for the traders and the investors as they negotiate the uncertainty surrounding the decision of the central bank.
Potential Scenarios: What If the Fed Cuts Rates?
The verdict of the US Fed meeting is going to play a huge role in deciding the further course of gold prices. Experts predict that if the Fed does come out with a 50 bps rate cut, something most of the market is factoring in, then the gold price will rise once more. This would be simply because a steep rate cut would put further pressure on the US dollar and Treasury yields, making gold look more attractive to investors.
Of course, there’s always the chance that the Federal Reserve prefers a more tempered 25 bps rate cut. In such an event, prepare to see some vicious selling on the gold market. An arbitrarily smaller rate cut might still reinforce some form of warning about a more conciliatory approach by the Federal Reserve on its monetary policy-thus reducing some recent optimism regarding gold.
Why are Gold Prices so sensitive to US Fed Decisions?
The ripples created by the changes in interest rates have an impact on the broader financial markets, making gold sensitive to interest rate changes. Interest rate cuts by the Federal Reserve usually lead to a weakening US dollar and lower yields on bonds, which makes gold more compelling as an asset class. A weaker dollar makes gold cheaper for foreigners, and lower bond yields reduce the opportunity cost of holding non-yielding assets like gold.
The opposite happens when interest rates increase-the US dollar strengthens, bond yields rise, and thus the asset gold becomes less attractive. The effect is intuitively clear, and this explains why gold prices will react promptly to any changes in expectations concerning interest rates and also why the outcome of the US Fed meeting is always important for gold traders as well as investors.
Conclusion: Gold Prices Headed for Volatility
The current gold market reflects some broader economic uncertainties, and investors apparently are looking for safe-haven assets amid speculation about the next moves at the Federal Reserve. While waiting for the outcome of the US Fed meeting, the price of gold may experience volatility with sharp movements depending on the size of the rate cut.
While market expectations are there that maybe there might be a rate cut to the tune of 50 bps, anything other than that will bring in unmanageable price volatility, not just in the spot gold market but also at MCX. For now, gold continues its uptrend on expectation of looser monetary policy and for yet another reason: the inability of economies to display better strength. As this situation unfolds, investors would do well to watch closely for levels of activation in the gold market as it navigates possible risks and rewards ahead.