All That Glitters
Gold scales new lifetime high on COMEX on weak dollar, rate cut expectation
This story was originally published at 22:13 IST on 13 September 2024
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NEW DELHI – Gold prices on COMEX jumped to a new all-time high today on the back of a weaker dollar and growing expectations that the US Federal Reserve will cut interest rates next week. A weaker dollar makes commodities priced in the greenback cheaper for holders of other currencies, thereby lifting demand for them.
At the time of writing, the December gold contract on COMEX was at $2,607.40 per oz, up 1% from the previous close. Earlier in the evening, it hit a record high of $2,611.60 per oz.
Lower interest rates bode well for non-yielding assets such as gold. The probability of a 25-basis-point interest rate cut by the Fed is 55% and that of a 50-bps cut is 45%, according to the CME FedWatch tool. The positive sentiment in the gold market was boosted by the European Central Bank on Thursday cutting its key deposit facility rate by 25 bps to 3.50%. Experts believe the ECB is likely to cut rates further before the year ends.
If the Fed cuts rates next week, it will be a first in four-and-a-half years. "We expect a small rate cut. Since the market has already widely anticipated a reduction in interest rates, we do not expect significant price movements in the gold market after the price rose to a record high," Commerzbank AG said in a report today.
Additionally, "the market is still expecting the Fed to cut interest rates by around 100 basis points by the end of the year, i.e. rates would have to be cut by 50 basis points at one of the two remaining meetings after September," Commerzbank said. According to Fed funds futures, further cuts of 100 basis points are expected to follow by mid-2025. "It is therefore likely, due to these aggressive interest rate cut expectations for the coming months, that the gold price is rising," the German bank said.
The most-active October contract of gold on the Multi Commodity Exchange of India hit a near two-month high of 73,545 rupees per 10 gm earlier today. At the time of writing, the contract was at 73,393 rupees per 10 gm, up 0.8% from the previous close.
The conservative target for COMEX gold is at $2,650 per oz if the Fed cuts rates. If there are cues for a 100 bps rate cut before December, then the level of $2,800 per ounce could be scaled as well, said Manoj Kumar Jain, director at Prithvi Finmart. On MCX, Jain said gold contracts could scale a high of 76,000 rupees per 10 gm next week and hit the 80,000-rupee mark by the end of the year.
US$1 = 83.88 rupees
Reported by Sayantan Sarkar and J. Navya Sruthi
Edited by Rajeev Pai
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