Fed’s Bowman rate caution may ‘tighten’ gold rally

Investing.com — Gold prices held just below the flat line on Wednesday, after hitting a new record high in Asian trade.

By 07:07 ET (11:07 GMT), it was 0.03 percent lower at $2,656.24 an ounce. Earlier, it hit a record high of $2,670.43 an ounce in Asian trade.

The prospect of lower interest rates weighed on the dollar and boosted gold as traders priced in a lower opportunity cost to invest in non-yielding assets.

The yellow metal also saw a demand for refuge triggered by Israeli attacks in southern Lebanon, which increased tensions in the Middle East. Support also came from a series of stimulus measures announced by China aimed at rejuvenating sluggish activity in the world’s second-largest economy.

This week’s comments from Federal Reserve speakers, as well as Friday’s release of the central bank’s preferred inflation gauge, could provide further insight into the way forward for borrowing costs.

Citi analysts predicted that following a jumbo cut of 50 basis points last week, the Fed is likely to cut rates by a total of 125 basis points this year. Meanwhile, Goldman Sachs expects cuts of 25 basis points at each meeting from November through June 2025.

But in a note to clients, analysts at HSBC signaled that recent statements by Fed Governor Michelle Bowman warning against steep rate cuts “could limit” gold’s recent strength.

On Tuesday, Bowman defended his decision to vote against the big rate cut, signaling that leading inflation indicators remain “uncomfortably above” the Fed’s stated target level.

Her position contrasted with other Fed officials earlier this week, who argued the half-point cut was necessary because high rates were putting too much pressure on the economy at a time when inflation appears to be easing and pressures on demand of work are increasing.

“The scenario presented by Ms. Bowman, while perfectly possible and bearish, is clearly not one embraced (by) gold investors who, by initiating repeated record highs, show confidence in faster rate cuts and what this means for gold,” HSBC analysts wrote.