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18 July 2024 | FXGT.com

Gold Prices Hit Historic Highs Driven by September Rate Cut Projections & China’s Economic Slowdown

  • Gold Prices Surge to Record Highs: Gold prices surged to an all-time high above $2,480 per ounce on Wednesday. Since the start of 2024, gold has climbed over 20%, including an 8% rise since early June following the last FOMC meeting on June 12th.
  • Market Sentiment Shift: The market’s expectations for Federal Reserve rate cuts have changed significantly over the past week. Initially, there was little expectation for multiple rate cuts this year. However, according to market expectations, it is now almost certain that there will be a rate cut in September, with one or two more possible by year-end.
  • Market Reaction: The CME FedWatch tool now indicates a 96% chance of at least a 0.25% cut in the Fed Funds rate in September, up from just above 60% last week. This shift followed softer-than-expected US inflation data for June, with the CPI falling to 3.0%.
  • Fundamental Data: Declining inflation and stalling retail sales in the U.S. have influenced market expectations. Fed Chair Jerome Powell’s remarks on inflation nearing target levels have increased market confidence in an easing cycle starting in September. These factors have boosted gold’s performance, with recent data pushing prices towards new highs.
  • Global Central Bank Actions: Expectations that other major central banks in Europe and Asia will also implement rate cuts have increased demand for precious metals. This global trend towards lower interest rates supports the bullish outlook for gold.
  • China’s Economic Data: Weaker economic data from China, published earlier in the week, has increased global economic uncertainty and further supported higher gold prices. China’s GDP growth slowed to 4.7% year-on-year in Q2, down from 5.3% in Q1, with other indicators like retail sales and fixed asset investment also underperforming.
  • China’s Gold Buying: The People’s Bank of China’s decision to halt gold purchases in June slightly influenced market sentiment, but overall demand from investors remains strong amid global economic uncertainties. Chinese retail investors continue to buy gold, even at high premiums, highlighting strong consumer demand in China.
  • Geopolitical Risks: Gold has reached new all-time highs amidst lower geopolitical risks compared to previous months when Middle East tensions were escalating. With gold currently at record prices, the emergence of any new geopolitical risks or escalating tensions could further propel prices, potentially leading to significant price discovery and parabolic increases.
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