Gold Rises as Interest Rate Cut Bets Grow
Gold is experiencing a strong upward trend, heading for its fourth consecutive monthly gain, supported by expectations of a shift in the US Federal Reserve's monetary policy. Gold prices rose to nearly $4,192 per ounce today before correcting to around $4,160 per ounce.
Interest Rate Cut Expectations Revive Gold's Luster
Market movements indicate a dramatic shift in investor expectations, with US interest rate futures showing a jump in the probability of a December rate cut to 87%, compared to just 30% a week ago.
This rapid shift reflects market confidence in central banks' move towards a more accommodative monetary policy.
This climate reinforces expectations of three more potential interest rate cuts by the end of 2026, creating an ideal environment for gold to rise, as it is considered an asset that thrives under monetary easing policies.
How Does an Interest Rate Cut Affect Gold?
Lower interest rates reduce real returns on investments, making non-yielding assets like gold more attractive than traditional instruments such as bonds.
Traders are also rushing to build positions in anticipation of any official announcement from the Federal Reserve, which could trigger an additional surge in demand as the year draws to a close.
A weaker dollar is supporting the rally
The US dollar is on track for its worst weekly performance since last July, boosting gold by increasing the purchasing power of foreign buyers.
A weaker US currency is an indicator of declining global demand, driving investors toward gold as a hedge against currency volatility and political uncertainty.
Gold is also poised for its strongest annual performance since 1979, supported by central bank purchases and strong inflows from non-sovereign investors into gold exchange-traded funds (ETFs), reflecting renewed confidence in the precious metal as a safe haven during turbulent economic times.
