Gold Rally: Market Absorbs 25 Basis Points, Eyeing 50 for New Records

Gold Hits Record Highs in August. Will a Fed Rate Cut Keep the Rally Going?

Gold prices surged 3.6% in August, closing the month at $2,513 per ounce, according to the World Gold Council. After hitting an all-time high on August 20, the question now is whether September’s anticipated Federal Reserve 25 basis point rate cut will fuel further gains, or if it will take a supersized 50 basis point cut to keep gold’s rally alive. With heightened market anticipation around the Fed’s decision, traders are closely monitoring gold’s next moves as we head into the fall.

Why Did Gold Rally in August?

Dollar Weakness and Lower Yields

According to the World Gold Council’s Gold Return Attribution Model (GRAM), a significant driver behind gold’s rise in August was a steep drop in the US dollar, which made the metal more appealing for international buyers. Simultaneously, lower yields on US 10-year Treasury notes—driven by the Fed’s signals of impending rate cuts—boosted gold’s appeal as a non-yielding asset. With interest rates expected to decline further, the opportunity cost of holding gold is diminishing, increasing its attractiveness as a store of value.

India’s Gold Demand Boost

India’s late-July cut in import duties on gold provided another shot in the arm for demand. The World Gold Council noted that Indian consumers and jewelry retailers responded swiftly, boosting gold purchases in a market that accounts for one of the largest sources of global demand. This surge in Indian demand played a pivotal role in pushing prices higher, adding to the global bullish sentiment for the precious metal.

ETF Inflows Continue

Physically-backed gold ETFs recorded net inflows for the fourth consecutive month, led by Western funds, as reported by the World Gold Council. These consistent inflows reflect investor confidence in gold as a hedge against inflation and potential economic downturns. The steady demand from ETFs has been a crucial factor underpinning gold prices throughout 2024, signaling sustained interest from institutional investors.

What Lies Ahead for Gold?

Can Gold Sustain its Rally with a Rate Cut?

As we move into September, all eyes are on the Federal Reserve’s upcoming rate cut. While a 25 basis point cut seems likely, some investors—according to the World Gold Council—are speculating that a larger 50 basis point cut may be necessary to further fuel gold’s rally. A supersized cut could weaken the dollar significantly and drive yields lower, giving gold an additional push. However, the Fed’s decision will depend heavily on incoming economic data, adding a layer of uncertainty to the outlook.

Macro Risks and Election Uncertainty

The World Gold Council also highlights broader macro risks, such as China’s economic slowdown and Europe’s manufacturing slump, which could maintain strong demand for safe-haven assets like gold. Additionally, uncertainty surrounding the upcoming US elections in November may drive further hedging activity, bolstering gold prices in the months ahead.

Gold Prices Forecast: Bullish Outlook for H2 2024

The outlook for gold in the second half of 2024 remains bullish. Whether the Fed opts for a moderate 25 basis point cut or a more aggressive 50 basis point cut, gold is well-positioned to benefit, as noted by the World Gold Council. The combination of lower rates, global economic risks, and political uncertainty suggests that gold will continue to act as a hedge, attracting more investors and pushing prices higher. Traders should prepare for ongoing volatility, but the conditions remain favorable for further gains in the gold market.