Fed rate cut view sends gold price to record highs in March

Gold price at new record highs post-Fed

Gold prices hit record highs for the fifth time this month on Thursday, after the U.S. Federal Reserve signaled its intention to implement three interest rate cuts in 2024, despite persistently high inflation.

As of 13:18 GMT, the price of spot gold rose 0.8% at $2,202.39 per ounce after setting a record of $2,222.39 earlier in the trading session. Meanwhile, U.S. gold futures saw a notable rise of 2.2%, reaching $2,205.50.

At the time of writing — 14:00 GMT on March 21 — spot gold had retreated to $2,193.20, still on track for potential a daily gain of 0.32%.

Julius Baer analyst Carsten Menke commented on the gold price rally to Reuters:

"The rally was started by yesterday's Federal Reserve comments, basically confirming their intention to eventually start cutting U.S. interest rates. The mood in the gold futures market is very bullish. So your hedge funds or any other short-term traders or trend followers are positioned for higher prices, and I think this is the segment that is in the driving seat while the physical gold market is rather soft”.

Fed Chair Powell signals three cuts in 2024, sends gold higher

Fed Chair Jerome Powell acknowledged the current high U.S. inflation rates but suggested that the Federal Reserve still plans to cut interest rates by three-quarters of a point by the end of 2024, contingent on upcoming economic data.

Following the Fed's announcement, the likelihood of rate cuts beginning in June has risen to 74%, an increase from 60% prior to the announcement, as reflected in market forecasts based on the CME Group's FedWatch Tool.

In reaction, the U.S. dollar index (DXY) — a gauge of the greenback’s strength against six major currencies — fell to its lowest level in a week, while yields on U.S. 10-year Treasury notes also decreased. At the time of writing on March 21, the DXY index is up 0.21% at 103.65.

The potential reduction in interest rates diminishes the opportunity cost of holding non-yielding assets like gold, exerting downward pressure on the dollar and enhancing the appeal of gold priced in dollars for investors using other currencies.

Technical analysis by Reuters' Wang Tao suggests that spot gold could challenge resistance at $2,222 per ounce . Surpassing this level might lead to further gains, potentially reaching between $2,228 and $2,234.

Gold price forecast: SocGen says new objectives at $2,250 and $2,360

Analysts at Societe Generale shared their updated gold price forecast after the Federal Reserve meeting. Their projections appared slightly higher than those shared by Tao:

“Gold has established itself above the upper part of its multi-year range ($2,075) in the form of a rectangle; this denotes the uptrend has resumed. It has also overcome the peak achieved in December. The break from multi-year consolidation points towards the possibility of larger upside.

The up move is likely to extend towards the next objectives located at projections of $2,250 and $2,360. The target for the rectangle is located at $2,460.

The upper limit of the rectangle at $2,075 is near-term support”.

As for other precious metals, spot silver fell by 0.4% to $25.51 per ounce, while platinum rose by 0.6% to $912.10, and palladium saw a 0.9% decrease to $1,012.22 per ounce.