| Summary Gold prices have surged to new highs following the Federal Reserve’s 50 basis point rate cut, fueled by geopolitical tensions and central bank buying, despite concerns of an impending recession. |
The price of gold has surged after the Federal Reserve slashed its interest rate by 50 basis points.
XAUUSD – Weekly Chart
The price of gold has surged from March to break above previous all-time highs at $2,074 and has now moved to $2,622. A buy and hold strategy could be dangerous here, but investors can ride the wave until the picture changes.
Last week’s Federal Reserve interest rate cut has added to the bullish tone in gold prices. The Fed slashed rates by 50 bps, which was the higher-end of expectations from analysts.
The movement to an easing cycle from the Fed is adding to a tense geopolitical environment, where Israel has stepped up attacks in Beirut, and Ukraine continues to expand its attacks on Russia.
One risk for gold prices is that the sharp cut by the Fed could be coming ahead of a recessionary tone.
Rabobank was unimpressed by Fed Chair Jerome Powell’s reasoning for a 50 basis point cut, which he said was due to a healthy economy.
“In the past, the Fed only cut 50 bps at the start of a cutting cycle in case of a severe deterioration in the economy or markets, such as the dot com bubble and the Global Financial Crisis,” analysts said.
Central bank buying has also been a big driver of gold prices in the last two years, but one of the largest buyers in China has paused. China bought gold for 18 straight months but has now paused for 4 consecutive months in August.
The Chinese central bank was the world’s largest single buyer of gold in 2023, and its decision to put its buying on hold has also slowed Chinese retail investor demand in recent months.
For now, the price of gold is powering ahead and will do so until there is a change in economic data.
