Gold futures set a new record high of $3,706.80 per troy ounce on Monday as the odds of interest rate cuts at the next few Federal Open Market Committee (FOMC) meetings continue to rise.
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Gold generally carries an inverse relationship with interest rates because the precious metal doesn’t pay out interest. In other words, when interest rates fall, the opportunity cost of holding gold decreases, making it more attractive to investors.
Gold Extends Rally as Rate Cut Odds Strengthen
Gold futures have already increased by nearly 40% year-to-date, although rate cut momentum and geopolitical uncertainty could drive the safe-haven asset even higher. The odds of a 25 bps reduction at the September 16-17 meeting are now at 94.1% compared to 90.1% yesterday and 86.9% a week ago, according to CME’s FedWatch tool.
By the end of the year, traders are pricing in a 7.1% chance of four rate cuts, a 67.4% chance of three cuts, a 23.8% chance of two cuts, and a 1.7% chance of a single cut. Each rate cut is equivalent to 25 bps.
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