Gold continues to surge as dollar weakens, rate-cut expectations grow; silver plunges

Gold prices continued their record-setting streak on Tuesday, staying solidly above the crucial $2,500 mark. This rise is fueled by a weaker dollar and increasing investor confidence that the Federal Reserve might reduce interest rates in September.

As of 11:22 a.m. ET [1522 GMT], spot gold edged up 0.1% to $2,507.45 per ounce, after reaching an all-time high of $2,531.60 earlier in the session. Meanwhile, U.S. gold futures climbed approximately 0.2% to $2,545.60.

“Gold continues to trade steady above $2,500 per ounce, with buying seen at corrective levels. In the session ahead, focus will be on the U.S. Fed chairman's speech at Jackson Hole Symposium for any clues on the U.S. Federal Reserve's rate cut trajectory, and traders will also keep a close eye on developments in the Middle East,” said Pranav Mer, VP - Research (Commodity & Currency) BlinkX and JM Financial.

What's weighing on gold prices?

The dollar index dropped to its lowest point in seven months, enhancing gold's appeal for holders of other currencies, while yields on benchmark U.S. 10-year bonds declined.

Holdings in the SPDR Gold Trust GLD, the largest gold-backed exchange-traded fund globally, surged to a seven-month high of 859 tons on Monday.

According to the CME FedWatch Tool, the market is anticipating a 71.5% probability that the Federal Reserve will reduce interest rates by 25 basis points in September.

Traders will be watching closely for insights from the Fed's July policy meeting minutes on Wednesday and Fed Chair Jerome Powell's keynote speech at the Jackson Hole symposium later in the week, as these may provide further indications on potential rate cuts.

Gold, which generally benefits from a low-interest-rate environment, has increased by more than 20% this year and is on track for its best performance since 2020.

“Gold prices climbed higher by ₹500 in MCX, reaching ₹72,075, as Comex gold rose above $2,520 with gains of $18. The recent surge was largely driven by the weakening of the dollar index, with markets increasingly expecting an interest rate cut of at least 0.25 basis points in September, and even a small possibility of a 0.50 basis point cut. As a result, gold continues to price in these expectations. Looking ahead, Friday's Jackson Hole symposium, along with Fed Chair Powell's speech, will be crucial in determining the pace and frequency of potential interest rate cuts. Buy on dip trend continues as long as price remains above 2480$ & 71000rs,” said Jateen Trivedi, VP Research Analyst - Commodity and Currency, LKP Securities.

In other markets, spot silver decreased by 0.1% to $29.45 per ounce, platinum dropped 0.4% to $950.20, and palladium rose by 0.3% to $935.00.