Fed rate cut: How will it impact gold prices in near term? Experts weigh in

The bullion has experienced a decline every September since 2017, with an average drop of 3.2 per cent during this month—making it the worst-performing month of the year, significantly underperforming the monthly average gain of 1 per cent, according to reports.

Gold's recent gains have been fueled by expectations that the Federal Reserve will begin easing monetary policy next month. Last week, Fed Chair Jerome Powell indicated that "the time has come" to reduce interest rates, but the pace and extent of these cuts could be crucial in determining whether gold continues its upward trajectory.

The precious metal has surged 22 per cent this year, with an 8 per cent increase since July. This rise has been driven by strong central bank purchases, heightened demand as a safe haven due to geopolitical tensions, and solid buying of physical bars in the over-the-counter market.

“The anticipated 0.25 basis point rate cut by the Federal Reserve in September has already been factored into gold prices, particularly as gold encounters resistance near the $2,510-$2,520 zones. This suggests that any further upside in gold would likely require either a more aggressive rate cut or a surprising 0.50 basis point cut in the September meeting. As a result, gold may continue to face pressure around these resistance levels, keeping it within a trading range of $2,465 to $2,525 in the near term for Comex & 70800-72400 in MCX,” said Jateen Trivedi, VP Research Analyst - Commodity and Currency, LKP Securities.

Here's how gold prices to look in September 2024

According to Trivedi, the precious metal is likely to remain volatile with significant changes in expectations for rate cuts directly impacting its price trajectory.

“Market participants will keenly monitor key upcoming data, such as the Core PCE Price Index, inflation figures, non-farm payrolls, and unemployment data. These indicators could provide additional clarity and potentially shift sentiment, influencing gold's movement as the September policy meeting approaches,” Trivedi added.

However, experts also predict a fresh rally in the precious metal in the near term.

“The market has already discounted a 25 basis point rate cut from the Fed in September into the gold price. If the Fed decides to cut rates by more than 25 basis points or signals a more dovish stance (indicating further rate cuts in the future), it could indeed trigger a fresh rally in gold prices. This is because such actions would suggest a more accommodative monetary policy, potentially leading to weaker U.S. dollar and lower yields, both of which are supportive for gold,” said Rahul Kalantri, VP Commodities at Mehta Equities Ltd.