Gold Climbs to Fresh Peaks Amid Fed’s Balanced Rate Strategy and Heightened Global Tensions

Gold prices have pushed further into record territory, achieving a new all-time high of $3,791.255 on Tuesday, fueled by prospects of additional Federal Reserve interest rate cuts and ongoing geopolitical uncertainties that sustain robust safe-haven buying. As of 19:24 GMT+2, gold is trading at $3,783.140, marking a 0.98% gain from the previous close of $3,746.355, with the day’s range spanning $3,736.660 to $3,791.255.

Investors remain fixated on the Federal Reserve’s policy trajectory after last week’s 25-basis-point rate reduction, with market expectations leaning toward two more cuts by year-end. Such moves typically diminish the appeal of the U.S. Dollar and Treasury yields, thereby lowering the holding costs for gold and enhancing its allure as a non-interest-bearing asset.

Nevertheless, Federal Reserve officials have conveyed a prudent outlook on additional easing measures. Chair Jerome Powell highlighted the “two-sided risks” inherent in policy choices, noting that there is “no risk-free path” ahead. He cautioned against overly aggressive rate reductions that might fail to fully address inflation, potentially necessitating later reversals, while prolonging tight policy could risk unnecessary labor market weakening. Powell characterized the current policy as “modestly restrictive,” affirming the Fed’s readiness to adjust based on incoming data.

Vice Chair Michelle Bowman framed the recent cut as a preliminary step toward a neutral stance, alerting that rapid labor market deterioration might demand swifter responses. Austan Goolsbee indicated potential for further rate declines if inflation nears the target but dismissed 50-basis-point adjustments, viewing policy as mildly restrictive with neutral rates estimated 100-125 basis points below present levels.

Recent economic figures showed the S&P Global Composite PMI slipping to 53.6 in September’s initial estimate, underperforming expectations and the prior 54.6, yet still signaling growth above the 50 expansion threshold. Manufacturing PMI stayed at 52.0, in line with forecasts but down from August’s 53.0, and Services PMI registered 53.9, matching predictions but below the previous 54.5.
Governor Stephen Miran, in a recent address, pushed for expedited shifts to neutral rates via successive 50-basis-point cuts, underscoring the importance of bolder actions absent changes in conditions and signaling willingness to dissent if required. Divergent views persist among peers:

St. Louis President Alberto Musalem posited limited capacity for further easing, Cleveland President Beth Hammack advocated vigilance to avert inflation resurgence, and Atlanta President Raphael Bostic minimized the urgency for immediate steps.

This tempered Fed rhetoric has prompted a slight pullback in easing wagers, with futures now implying about 43 basis points of cuts by year-end, a modest decrease from earlier figures. Market probabilities suggest over 90% likelihood of a 25-basis-point cut in October and roughly 73% for another in December.
Geopolitical strains continue to underpin gold’s strength, encompassing escalated Russia-NATO disputes over Eastern European airspace breaches, intensified scrutiny of Iran’s nuclear endeavors, and enduring Middle East volatility, all directing capital toward safe-haven investments.

Reports also suggest China is extending invitations to foreign central banks to hold portions of their gold reserves within its borders through a local exchange, a strategic effort to amplify its role in the international bullion arena.