Gold reached another record high on Monday as investors increased their bets on a potential US interest rate cut. The precious metal surged to $3,616, surpassing the $3,500 mark just days earlier. This rise is attributed to recent economic instability, including President Donald Trump’s pressure on the Federal Reserve.
Neil Wilson, UK investor strategist at Saxo Markets, commented, “Gold keeps delivering. The possibility of the Fed’s independence being at stake and erosion of confidence in the US and dollar is keeping momentum behind it.”
The White House faced a setback on Friday with new jobs data indicating a weakening US labour market in August, as only 22,000 jobs were added and unemployment rose to 4.3 per cent. The administration quickly attributed the disappointing figures to the Federal Reserve. Karoline Leavitt, White House press secretary, criticised Jerome Powell’s reluctance to align with President Trump’s views.
Trump’s criticism of the central bank has intensified, particularly targeting Powell. The President’s attempt to dismiss Fed governor Lisa Cook has raised concerns about the central bank’s independence. Amidst this turmoil, gold has benefited, rising 0.5 per cent to a two-week high. The metal is poised for further gains if weak jobs data influences the Fed towards a dovish rate decision this month.
The surge in gold prices follows warnings from analysts at Goldman Sachs, who recently suggested that gold could reach nearly $5,000 an ounce if President Trump’s continued criticisms of the Federal Reserve undermine its independence. There is a prevailing fear among investors that political pressure on the Fed could weaken its resolve to combat inflation, leading to a shift away from dollar-denominated assets towards precious metals.
Gold, a non-yielding asset, typically performs well when interest rates decrease, as it doesn’t incur interest or dividends, reducing the opportunity cost compared to interest-bearing investments. The CME’s FedWatcher tool indicates a near-90 per cent probability of a 25 basis point cut on September 17.
In London, gold miners have seen gains on the market due to rising prices. Fresnillo increased over two per cent to 2,164.00, while FTSE 250 miner Hochschild rallied over four per cent to 339.60.
