Gold skyrockets as stars align for Fed rate cuts

By Anushree Ashish Mukherjee and Swati Verma

(Reuters) - Gold prices powered higher on Friday, beating record levels, as a boost in bullish momentum fuelled by optimism that the U.S. Federal Reserve is on the brink of trimming interest rates was catalysed by fund inflows and a drop in the dollar.

Spot gold was trading at record levels, up 0.9% at $2,582.04 per ounce by 1:45 p.m ET (1745 GMT).

U.S. gold futures settled 1.2% higher to $2,610.70.

Gold market bulls are locking in bullion prices surging to fresh records, with a milestone of $3,000 per ounce coming into focus, fired up by monetary easing by major central banks and a tight U.S. presidential election race.

The stars are aligned in favour of the gold and silver market bulls as the European Central Bank lowered its main interest rate this week, the Fed is likely to lower it next week and tame U.S. inflation data, Jim Wyckoff, senior market analyst at Kitco Metals, said.

Markets fully price a rate cut next week, with a 57% chance of 25-bps U.S. rate cut and a 43% chance of a 50-bps cut, the CME FedWatch tool showed. This would be Fed's first rate cut since 2020.

"The market is still expecting the Fed to cut interest rates by around 100 basis points by the end of the year, i.e. rates would have to be cut by 50 basis points at one of the two remaining meetings after September," Commerzbank analysts said.

"It is therefore likely due to these aggressive interest rate cut expectations for the coming months that the gold price is rising."

Further driving interest in bullion, the dollar fell on Friday to its lowest level this year against the Japanese yen. [USD/]

Global physically backed gold exchange-traded funds saw a fourth consecutive month of inflows in August, the World Gold Council said last week.

Holdings of the world's largest gold-backed ETF SPDR Gold Trust were at their highest levels since early January on Thursday. [GOL/ETF]

From the technical point of view, the Relative Strength Index currently at 69 suggests that the gold price is approaching the "overbought" territory, starting at 70.[TECH/C]

Palladium rose 2% to $1,067.43 and has surged about 17% so far this week.

Spot silver rose 2.3% to $30.61 and platinum added 2.4% to $1,000.57.

(Reporting by Anushree Mukherjee and Swati Verma in Bengaluru; Editing by Vijay Kishore Shailesh Kuber and Alan Barona)