The price of gold surpassed its previous all-time high on Friday to hit a novel record high of $2,570 an ounce. The rally is supported by expectations that the U.S. Federal Reserve will aggressively cut interest rates, notes Carsten Fritsch, a commodities analyst at Commerzbank.

Expectations of huge Fed rate cuts support gold

“The driver is a clear increase in expectations for a rate cut since yesterday. It should be noted that the US core consumer price index rose slightly more than expected in August, which should make a 50 basis point rate cut by the Fed less likely in the coming week. Fed funds futures currently price a probability of about 45%.”

“However, the market still expects the Fed to cut rates by about 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. According to Fed funds futures, another 100 basis points are expected by mid-2025. Therefore, it is likely that gold is rising on these aggressive expectations for rate cuts in the coming months.”

“Also in euros, gold yesterday reached a new record high above EUR 2,300 per troy ounce. Yesterday’s ECB rate cut probably gave a wind to this, especially as the market expects the ECB to cut rates even further in the coming months.”