Can gold prices hit new highs after Fed rate decision?

The price of gold surpassed its previous all-time high and hit a new record high of $2,570 per troy ounce on Friday, supported by expectations that the US Federal Reserve will cut interest rates aggressively, notes Carsten Fritsch, commodities analyst at Commerzbank.

Expectations of big Fed rate cuts support gold

“The driving factor is the significant increase in rate cut expectations yesterday. It should be noted that the core US consumer price index rose slightly more than expected in August, which should make a 50 basis point interest rate cut by the Fed next week less likely . Fed Funds Futures are currently pricing in about a 45% probability of this happening.”

“However, the market still expects the Fed to cut interest rates by around 100 basis points by the end of the year, meaning rates should be cut by 50 basis points at one of the two remaining meetings after September. According to Fed funds futures, another 100 basis points are expected to follow by mid-2025. Therefore, because of these aggressive interest rate cut expectations for the coming months, the price of gold is rising.”

“And in euro terms, gold jumped yesterday to a new record of over 2,300 euros per troy ounce. Yesterday’s interest rate cut by the ECB probably provided a tailwind here, especially as the market also expects the ECB to cut interest rates further in the coming months.”