HG MARKETS:

Gold prices experienced a remarkable surge in August, climbing 3.6% to end the month at $2,513 per ounce, as reported by the World Gold Council. The precious metal reached an all-time high on August 20, raising the question of whether the anticipated Federal Reserve rate cut in September will continue to drive gold’s upward momentum, or if a more substantial rate cut is needed to maintain the rally. Traders are eagerly watching to see how the Fed’s decision will impact gold prices as we move into the fall.

One of the primary factors contributing to gold’s rise in August was a significant drop in the value of the US dollar. A weaker dollar makes gold more attractive to international buyers, boosting its appeal. Additionally, lower yields on US 10-year Treasury notes, influenced by signals from the Fed regarding potential rate cuts, increased gold’s attractiveness as a non-yielding asset. As interest rates are expected to decline further, the cost of holding gold decreases, enhancing its appeal as a safe-haven investment.

In late July, India reduced import duties on gold, which had a positive impact on gold demand. The World Gold Council observed a swift increase in gold purchases from Indian consumers and jewelry retailers, who quickly responded to the reduced duties. India, being one of the largest markets for gold, saw a surge in demand that contributed to higher global prices, adding to the bullish sentiment surrounding the metal.

Physically-backed gold ETFs saw net inflows for the fourth consecutive month, with Western funds leading the way. These inflows reflect investor confidence in gold as a hedge against inflation and economic instability. The steady demand from ETFs has been a significant factor supporting gold prices throughout 2024, indicating strong interest from institutional investors.

As we approach September, attention is focused on the Federal Reserve’s upcoming rate cut decision. While a 25-basis point cut is expected, some investors speculate that a larger 50 basis point cut may be necessary to further boost gold prices. A larger cut could weaken the dollar more significantly and drive yields lower, providing additional support for gold. However, the Fed’s decision will heavily depend on incoming economic data, adding uncertainty to the market outlook.

The World Gold Council also points out broader economic risks, such as China’s economic slowdown and Europe’s manufacturing slump, which could sustain high demand for safe-haven assets like gold. Furthermore, the uncertainty surrounding the upcoming US elections in November may drive more investors to hedge with gold, potentially boosting prices in the coming months.

The forecast for gold in the second half of 2024 remains positive. Whether the Fed opts for a moderate 25 basis point cut or a more aggressive 50 basis point cut, gold is expected to benefit from the combination of lower interest rates, global economic uncertainties, and political risks. Traders should be prepared for continued volatility, but the current conditions suggest that gold will continue to attract investors and push prices higher.