Gold prices hit record high as rate cut bets build

Investing.com– Gold prices hit a record high in Asian trade on Friday, buoyed by persistent speculation that the Federal Reserve will cut interest rates in the coming week, while increased safe haven demand in the face of a tight U.S. presidential election also helped. 

The yellow metal shot up on Thursday and Friday, tracking declines in the dollar and Treasury yields as markets maintained bets on an interest rate cut despite some stronger inflation data. 

Signs of weakness in the labor market also furthered this notion. 

Spot gold rose 0.3% to $2,566.59 an ounce, while gold futures expiring in December rose 0.6% to $2,594.70 an ounce by 23:47 ET (03:47 GMT). Spot gold surged to a record high of $2,570.06 earlier in the session, while gold futures neared a peak of $2,600.

Gold buoyed by rate cut speculation

Gains in the yellow metal came as investors remained convinced that the Fed will cut rates when it meets next week. 

But markets were uncertain over the scale of the potential rate cut. Strong inflation readings released earlier this week saw expectations shift towards a smaller, 25 bps reduction.

But soft labor market data- specifically jobless claims– released on Thursday, saw bets on a 50 bps reduction come back into play. Traders were seen pricing in a 58% chance for a 25 bps cut and a 42% chance for a 50 bps cut, according to CME Fedwatch. 

But analysts still expect next week’s meeting to mark the beginning of an easing cycle for the Fed, with the central bank expected to cut rates by at least 100 bps by the end of the year. After September, there are two more Fed meetings left in the year. 

Lower rates bode well for gold and other precious metals, given that they lower the opportunity cost of investing in non-yielding assets. 

Other precious metals rose on this notion, although they still lagged gold. Platinum futures rose 0.6% to $989.80 an ounce, while silver futures rose 0.6% to $30.280 an ounce.

Copper rises on China stimulus hopes 

Industrial metals were buoyed by the prospect of lower rates, given that they herald increased economic activity. Copper prices were also supported by hopes of more stimulus measures in top importer China. 

Benchmark copper futures on the London Metal Exchange rose 0.7% to $9,280.0 a ton, while one-month copper futures rose 0.4% to $4.2260 a pound. 

A string of weak economic readings from China spurred increased bets that Beijing will roll out more stimulus measures to buoy growth. Citi analysts said they expect “incremental” stimulus measures from China through the rest of the year.