The price of gold surged to a new all-time high of $2,582 per troy ounce on Friday on the back of a weaker dollar and expected rate cuts.
The precious metal is up 3% in the past three days as investors eye the Federal Reserve’s next Federal Open Market Committee meeting Tuesday and Wednesday, when the U.S. central bank is expected to cut its benchmark interest rate by as much as half a percentage point.
Gold historically has an inverse relationship with interest rates — as rates fall and yield-producing assets lose some of their luster, the price of gold tends to rise while offering more appeal to investors looking for assets with higher appreciation potential. Though this isn’t always the case, it appears to be in the lead-up to the Fed’s decision next week.
While it remains unclear if the Fed will cut by 25 or 50 basis points, there is speculation that a larger cut could happen based on strong recent economic data. August’s consumer price index print came in at 2.5%, which is just above the Fed’s long-run target of 2%.
Between inflation being the lowest in three years, August’s job report being stronger than July’s and wholesale prices, as measured by the producer price index, only increasing by 0.2% last month — in line with analysts’ expectations — the Fed is now equipped with sufficient data to make a sizable cut to the effective federal funds rate.
The result could be ongoing bullishness for gold, which is already up 35% this year and outperforming the S&P 500 by 17% in 2024. Investors who want to gain exposure to gold can do so by purchasing the physical metal through online dealers or buying shares of gold miner stocks or gold-themed ETFs.
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