Gold prices fell after rising to a new all-time high on Wednesday as the U.S. Federal Reserve cut interest rates by 50 basis points, placing additional downward pressure on the dollar.
In the UAE, gold prices declined by AED0.75 with 24-carat gold inching down to AED310.50 and 22-carat gold declining to AED287.50. Meanwhile, 21-carat gold reached AED278.25 and 18-carat gold was at AED238.50.
Globally, spot gold rose 0.28 percent to $2,566.27 as of 5:10 GMT, after hitting a new record high of $2,594.52 in the previous session. Gold prices have gained close to 33 percent in the last year. Meanwhile, U.S. gold futures fell 0.26 percent to $2,591.90.
Fed delivers 50-basis-point rate cut
Gold prices set a new record high after the Fed cut rates by 50 basis points, in line with market expectations. Officials during the central bank’s meeting expected interest rates to end the year at around 4.4 percent, with additional easing in 2025. Policymakers currently see the Fed’s benchmark rate falling by another half of a percentage point by the end of this year and another full percentage point in 2025.
Lower interest rates decrease the opportunity cost of holding non-yielding assets like gold. In addition, they weigh on the dollar, making gold prices cheaper for investors holding other currencies.
Following the Fed’s decision, the dollar fell to its lowest since July 2023 then recovered, rising 0.37 percent to 100.97.
Monetary policy outlook
The Fed’s first rate cut since 2020 came amidst lingering concerns regarding the U.S. economic outlook. In a statement, Fed Chair Jerome Powell curbed concerns over slowing economic growth following the larger rate cut, stating that risks between rising inflation and a softer labor market were evenly balanced.
Powell also noted the prospect of more rate cuts, with markets pricing in a total of 125 basis points worth of rate cuts by the year-end.
However, the Fed chair also said the central bank has no intention of returning to an ultra-low rate environment and the neutral rate will likely remain much higher than before.
Will gold prices continue rising?
Several factors impact the trajectory of gold prices, including interest rates. As the Fed signals additional easing by 2025, gold prices will likely remain supported. The strength of the U.S. dollar, global economic growth prospects, and inflation expectations all play roles in gold prices’ trajectory. In addition, the surge in central bank buying has been a significant supporting factor for gold in recent months. Rising demand from investors and geopolitical tensions further support bullion.
Goldman Sachs expects prices to rise to $2,700 by early 2025, while other experts expect even bigger price increases for gold in the coming months.
Other precious metals
The precious metals market showed positive movements as gold prices declined from their new record high. Spot silver gained 1.13 percent to $30.40 while platinum rose 0.70 percent to $975.50. In addition, palladium inched up 0.13 percent to $1,063.29.
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