Gold hits record high as investors anticipate major US Fed rate cut

Gold (GC=F) prices surged to a new record, driven by mounting expectations that the US Federal Reserve will announce a significant interest rate cut later this week.

Spot gold rose 0.4% to a historic high of $2,589.02 (£1,965.20) per ounce, while gold futures for December delivery hit $2,613.70 per ounce.

Heightened demand for the safe-haven asset was further driven by reports of a second assassination attempt on Republican presidential nominee Donald Trump, although he was unharmed and the attacker apprehended.

Read more: Top fund picks for self-invested pensions

A softer US dollar (GBPUSD=X) added strength to gold prices as investors awaited the Federal Reserve’s upcoming meeting, where the central bank is expected to cut interest rates. While markets remain divided over whether the Fed will reduce rates by 25 or 50 basis points (bp), recent developments have tilted the balance towards the larger cut.

A report by Federal Reserve expert Nick Timiraos in The Wall Street Journal, alongside comments from former New York Fed president William Dudley, saw the probability of a 50 basis point cut increase from 27% to 43%. At the same time, market estimates for a smaller 25 basis point reduction fell to 57%.

Data from the CME FedWatch tool indicated an even 50-50 split on expectations for the size of the cut, with concerns over labour market weakness fuelling the case for more aggressive easing.

“The prospect of the Fed potentially delivering a 50 basis point cut this week has sent gold and the dollar in opposite directions,” Tim Waterer, chief market analyst at KCM Trade, told Reuters.

“Overall conditions for gold remain favourable, with further gains likely. If the dollar continues its downward trend, gold could reach $2,700 by year-end.”

Read more: ECB cuts interest rates again as Lagarde warns economic recovery faces 'headwinds'

The Fed is also anticipated to begin a broader easing cycle this week, with some analysts forecasting a total of 100 basis points of rate cuts by the end of the year.

"The US Fed has made it clear that monetary policy is going to be eased meaningfully from next week onwards. We had favoured a 50bp cut, but the latest job and inflation numbers suggest officials will more likely vote in favour of 25bp. Nonetheless, they will leave the door open to potentially more aggressive action down the line," analysts at ING wrote.

Lower interest rates tend to favour precious metals like gold, as they reduce the opportunity cost of holding non-yielding assets.

All eyes are on the Federal Reserve’s monetary policy meeting on 17-18 September, as well as the Bank of England and the Bank of Japan, which are also set to announce key policy decisions later this week.

Download the Yahoo Finance app, available for Apple and Android.