Gold sticks close to record ahead of Fed rate decision

Bengaluru — Gold prices hovered near a record high on Tuesday, ahead of the expected start of the US interest rate reduction cycle, which could result in policymakers delivering an outsize cut.

Spot gold was steady at $2,581.68/oz by 2.54am GMT. Bullion rose to a record high of $2,589.59 on Monday. US gold futures were also steady at $2,608.60.

“The rally in gold prices has taken a breather in today’s session,” said IG market strategist Yeap Jun Rong, adding that after recent gains driven by expectations of a more aggressive rate cut, there's now some caution as investors await further clarity from policymakers.

All attention is on the US Federal Reserve’s two-day policy meeting, which concludes on Wednesday. Markets are pricing in an 66% probability of a 50 basis point (bp) easing, compared with 43% on Friday.

Zero-yield bullion tends to be a preferred investment amid lower interest rates.

Gold prices could correct, even a 50bp cut this week could lead to initial weakness as expectations were met and recent long positions were reduced, said Nicholas Frappell, global head of institutional markets at ABC Refinery.

The dollar was down 0.1%, making gold less expensive for other currency holders.

The August’s US retail sales data at 12.30pm GMT is also on investors’ radar.

Goldman Sachs reiterated its optimistic outlook on gold prices. “We find that ETF [exchange-traded fund] holdings backed by physical gold continue to rise gradually as the Fed policy rate comes down,” it said in a note on Monday.

Spot silver inched up 0.1% to $30.79/oz and platinum rose 0.6% to $986.90.

Palladium gained nearly 1% to $1,087.09, after hitting its highest level since April 11 earlier in the session.

Chinese markets are closed for the day due to the mid-autumn festival break.

Reuters