Gold rises to record after US Fed makes first rate cut since 2020

Yellow metal rise: Gold witnessed a rise to a fresh record above $2,600 an ounce after the US Federal Reserve reduced its benchmark interest rate by a half percentage point.

The US Fed move is being seen as an aggressive start to a policy shift aimed at bolstering the US labour market.

Following Fed’s two-day gathering, projections released showed a narrow majority of 10 out of 19 officials favored lowering rates by at least an additional half-point over the US central bank’s two remaining meetings this year.

The treasury yields and the Dollar witnessed a dip after the rate cut decision.

Notably, Gold has the tendency to benefit from lower rates and it rose as much as 1.2 per cent before erasing gains after Fed Chair Jerome Powell in a press conference announced that no one should see this as a “new pace.”

As per Will Rhind, founder of investment firm GraniteShares Advisors, with the start of the rate-cutting cycle the interest rates are coming down and the dollar strength will start to wane.  

“The next kick-up for gold will be if there’s a sense that we are heading into recession, and the fear factor comes out and people need to start buying gold as a hedge,” Rhind added.

Gold prices have skyrocketed in a dramatic way this year, soaring more than 24 per cent to successive records.

While the rally at the start of 2024 was underpinned by emerging market demand, particularly from central banks and Asian consumers and investors, the focus in recent months has shifted squarely to the Fed, and the outlook for the US economy. Non-yielding bullion usually benefits in a low-rate environment, and recessionary worries tend to drive investors to seek safety in gold.