Gold hits new record amid Fed’s rate cut expectations, weakening US dollar

BERLIN

Gold hit a new record at over $3,600 per ounce, led by the estimates that the Fed may cut rates by 75 basis points in total by the end of the year, as well as a weakening US dollar.

Gold continues breaking records as its safe-haven feature comes to the fore amid uncertainties, geopolitical risks, and estimates of rate cuts, while the US debt reaches over $37 trillion.

The ounce price of gold is trading at $3,651.96 on Tuesday, up 0.5%. Gold increased by around 5% in a week.

More and more investors opt for gold in anticipation of falling interest rates. Gold rose 9% last month and more than 38% this year, versus 27% last year.

Meanwhile, silver is on a record spree in line with gold -- silver exceeded $40 per ounce for the first time since 2011, reaching $41.36, up 40% since the beginning of the year, overperforming gold.

Some investors view gold as more of a safe haven than US bonds, contributing to its rise, alongside the Fed’s likelihood to cut rates this month.

As labor data in the US showed a cooling labor market, money market estimates point to three rate cuts this year, each in September, October, and December, totaling 75 basis points.

The interest on the US economy’s debt of $37 trillion exceeds the country’s military spending, further prompting investors to look to safe-haven assets.

Trump versus Fed power struggle

US President Donald Trump has been pressuring the Fed to cut rates, as a power struggle between the otherwise independent bank and the president came to the fore.

Trump put extra pressure on the Fed last month, as he targeted Governor Lisa Cook -- the first Black woman on the Fed’s Board of Governors -- over an alleged mortgage fraud, accused by Bill Pulte, director of the Federal Housing Finance Agency.

Trump said he had “just cause” to fire Cook in the letter he posted on Truth Social, becoming the first US president to remove a Fed governor from their post.

Cook, in return, said she would not resign and would continue her duties as she has done since 2022.

She said she had “no intention of being bullied to step down from my position because of some questions raised in a tweet,” and that she will take legal action to set the record straight.

Cook’s attorney Abbe Lowell argued that Trump’s real concern may not be the alleged mortgage fraud but the governor’s opposition to rate cuts.

Low rates keep the US dollar and the bond yields under pressure, giving rise to the appeal of gold, which does not provide a steady return.

When rates are high, gold’s appeal wanes versus other investments generally regarded as safe, such as bonds. Earlier this year, despite the US 10-year bond yield reaching above 4%, gold ran for record highs several times.

The Fed’s increasing likelihood that the bank may ease rates more than expected continues to influence asset pricing and the US dollar index.

Meanwhile, the US Dollar Index fell by over 10% this year to 97.36.