Gold prices touched fresh record highs of $2,616.6 during Asian trade on Monday, following fresh record highs of $2,586 on Friday, fueled by rising expectations of a significant interest rate cut by the U.S. Federal Reserve.
Market participants will be closely monitoring the Federal Open Market Committee (FOMC) meeting scheduled for Wednesday, where the central bank is expected to announce either a 25 or 50 basis point cut.
The growing anticipation of a Fed rate cut follows recent economic data from the U.S. that pointed to a slowdown in the economy. This has strengthened the appeal of gold, as lower interest rates reduce the opportunity cost of holding non-yielding assets like the precious metal.
According to the CME FedWatch tool, there is currently a 48% probability of a 25-basis-point rate cut, while the likelihood of a larger 50-basis-point cut stands at 52%.
In addition to these domestic economic factors, ongoing geopolitical tensions, particularly in the Middle East, are also contributing to the support for gold prices.
Over the weekend, Israeli Prime Minister Benjamin Netanyahu warned that Yemen’s Houthis would face consequences after a missile launched by the group landed in central Israel.
However, the upside for gold may be capped due to concerns over a slowing Chinese economy. Recent data from China showed weaker-than-expected retail sales and industrial production in August, with industrial output growing at its slowest pace since March.
