On Friday, as bets on a 50 basis point rate cut by the Federal Reserve next week rose, spot gold continued to rise on the basis of a nearly 2% surge overnight, hitting $2,580/ounce, setting a new record high; COMEX gold futures rose more than 1% during the day, standing above $2,600/ounce. Spot silver also followed the rise in gold prices, rising more than 2.5% during the day. COMEX silver futures stood at $31/ounce, up nearly 3% during the day.
Bets on a 50 basis point rate cut by the Federal Reserve next week rose to 43% from 28% yesterday, according to the CME FedWatch tool.
The CPI and PPI data released earlier this week supported expectations for a modest PCE data at the end of this month, leading some investors to expect the Federal Reserve to be more concerned about employment issues.
Meanwhile, The Wall Street Journal reported that officials are considering more aggressive monetary easing as they believe inflation is under control and are concerned about employment.
Influential former New York Fed President William Dudley told a forum in Singapore that there was "good reason to support a 50 basis point rate cut."
Fiona Cincotta, market strategist at City Index, said: "So far I have been firmly in the camp of expecting a 25 basis point cut. But the market's performance actually makes me think they may think the cut could be as large as 50 basis points. It's now a coin toss on the outcome of next week's rate decision, and given the reaction we've seen in bonds, yen, dollar and gold, this is what the market is showing."
Carol Kong, a strategist at the Commonwealth Bank of Australia, believes that the market is currently overpricing the Fed's easing policy. She wrote in a report: "We continue to prefer a 25 basis point rate cut rather than a 50 basis point rate cut because the labor market and the broader economy remain resilient. Compared with historical rate cut cycles outside of recessions, the current market pricing is aggressive. We and the consensus of US economists believe that a recession can be avoided."
Gold has surged by about a quarter this year, supported by the Federal Reserve’s path of monetary easing. Central bank buying and strong safe-haven demand due to the Middle East and the conflict between Russia and Ukraine have supported the gains. Interest from retail investors is also rising.
The PPI data leaves "room for the Federal Reserve to consider a larger rate cut. Gold prices hit a new record high, reinforcing the overall upward trend in gold prices," said Jun Rong Yeap, market strategist at IG Asia Pte.
Investors ending bearish bets on gold may also be contributing to the rally. Money managers’ total short positions in Comex gold futures were at their highest in four weeks in the week ended Sept. 3, according to the latest data.
“Gold is now being used more as a hedge in portfolios,” said Chris Weston, head of research at Pepperstone Group Ltd. He noted that Thursday’s weak jobless claims data suggested fund managers may be looking at gold as a place to park money in case the U.S. economy deteriorates, which would further boost gold prices.
Fxstreet analysts said that gold prices have broken out of the consolidation range and reached the one-and-a-half-month symmetrical triangle target of $2,560, and the 14-day relative strength index (RSI) remains in the bullish zone, with more upside before breaking through the overbought boundary. If gold prices continue their bullish momentum, the next upward obstacle is at the $2,600 level, and a breakout here will test the psychological level of $2,650. If a correction occurs, initial support is at the previous all-time high of $2,532.
Article forwarded from: Jinshi Data
