Gold Prices Reach 3-Month Highs on Fed Rate Cut Expectations

Gold prices scaled the heights for a sixth consecutive session on Wednesday, reaching a three-month high after Federal Reserve Chairman Jerome Powell hinted that the U.S. central bank may cut interest rates if the American economy weakens as a consequence of trade disputes.

Gold futures for August delivery on the Comex division of the New York Mercantile Exchange, gained $14.65, or 1.1%, to $1,343.35 a troy ounce by 8:18 AM ET (12:18 GMT). That was its highest level since February.

Was already in rally-mode thanks to safe-haven demand in the wake of U.S. President Donald Trump’s threats of higher tariffs on imports from China and Mexico. Powell’s remarks gave it a further boost.

In an apparent shift from the prior stance that the Fed would remain “patient” with regard to changing interest rates, Powell said that the U.S. central bank would “act as appropriate to sustain the expansion,” noting the high degree of uncertainty on how the current disputes will play out.

Fed fund futures are now pricing in the probability of three rate cuts by the end of the year at more than 50%. Lower interest rates would be bullish news for gold as they reduce the opportunity cost of holding the non-yielding metal.

Callum Thomas, founder of research house Topdown Charts, noted that U.S. dollar strength had been keeping a cap on gold prices, but the recent shift in expectations for the Fed to cut rates has changed the larger picture.

“Historically a transition from rate hikes to rate cuts has precipitated a correction and/or bear market in the U.S. dollar,” he explained, adding that a bear market would be “more or less unequivocally bullish for gold.”

“So with rising uncertainty on the economic outlook, and a growing consensus for Fed rate cuts, a tired-looking U.S. dollar could well be the last line of defense for gold to break through,” he concluded.

In other metals trading, silver futures rose 0.6% at $14.852 a troy ounce by 8:21 AM ET (12:21 GMT).

Palladium futures edged forward 0.1 % at $1,342.85 an ounce, while sister metal platinum traded up 0.8% at $826.75.

In base metals, copper lost 0.3% to $2.660 a pound.