• Gold prices are rising as expectations of falling US interest rates grow, which is positive for the precious metal.
• The US Federal Reserve’s Adriana Kugler says the combination of falling inflation and a weakening labour market could force an interest rate cut “late this year”.
• Strategists at TD Securities say bets by traders at the Shanghai Futures Exchange are pushing the price of gold even higher.

Gold (XAU/USD) hit a fresh all-time high of $2,482 during the Asian session on Wednesday. The yellow metal’s gains were attributed to a mix of strengthening expectations that U.S. interest rates will fall in September and rising buyer demand at the Shanghai Futures Exchange (SHFE), according to analysts at Canadian Investment Bank TD Securities.

The expectation of interest rate cuts by the US Federal Reserve (Fed) is a key factor in the rise in gold prices, as lower interest rates reduce the opportunity cost of holding non-interest bearing assets.

Gold rises on hopes of interest rate cut in September

Gold surged in trading Tuesday after Fed Board of Governors Adriana Kugler gave a speech in which she said the Fed could cut interest rates “later this year.” Markets interpreted that as further confirmation of a September rate cut.

“If economic conditions continue to evolve in a favorable direction, it would be appropriate to begin easing monetary policy later this year,” Kugler said in a speech Tuesday at the Peterson Institute for International Economics.

Kugler said the labor market is showing signs of cooling and “rebalancing.” She added that further signs of worsening labor market conditions could also prompt the Fed to cut interest rates. The unemployment rate rose to 4.1% in June’s Nonfarm Payrolls report, while economists had expected it to remain at 4.0%. It was the third straight month that unemployment rose and the highest level since November 2021. Unlike most central banks, the Fed has a dual mandate to hit its 2.0% inflation target and “full employment.”

Her comments came after Federal Reserve Chairman Jerome Powell’s comments Monday rattled markets, in which he highlighted progress in bringing inflation down to target levels and suggested an interest rate cut was on the cards.

The CME FedWatch tool, which uses the price of 30-day federal funds futures to calculate the probability of future interest rate changes, prices in a 100% chance of at least a 0.25% cut in the federal funds rate to the upper range of 5.25% in September. Last week, the probability remained just above 60%.

The change in outlook comes after US inflation data in the form of the Consumer Price Index (CPI) in June missed expectations, falling to 3.0%. Personal consumption expenditure (PCE) data – the Fed’s preferred measure of inflation – also revealed a moderation in price growth in May, with both the core and overall indexes rising only 2.6%, both falling compact of economists’ expectations.

Shanghai Futures Buying Keeps Gold Demand High – TD Securities

According to TD Securities, gold prices are also rising due to frenzied buying of gold futures and options on the Shanghai Futures Exchange (SHFE).

“Guess who’s back. The top SHFE Gold traders are returning to the Yellow Metal. After a month-long lull in buying activity by this cohort, the top SHFE Gold traders’ positioning is now rapidly increasing towards the previous all-time highs achieved in 2024Q1,” says Daniel Ghali, Senior Commodity Strategist at TD Securities.

According to Ghali, investors on the SHFE exchange have added more than 10 tons of gold to their portfolios “over the last five trading sessions, mainly due to new long positions.”

The strategist further claims that discretionary investors are investing in Comex Gold again.

TD research indicates gold potentially benefits from a “Trump deal” coupled with expectations that the Federal Reserve will begin a cycle of interest rate cuts.

Technical Analysis: Gold Breaks Out of Range, Hits New All-Time High

Gold has clearly broken through the upper limit of its price range, setting a fresh all-time high.

The precious metal appears to have ended its sideways consolidation and is returning to a broader uptrend.

XAU/USD Daily Chart

A decisive break above the $2,451 high unlocked gold’s next upside target at $2,555, calculated by extrapolating the Fibonacci ratio of 0.618 of the high of the upper range.