Gold remained in losing territory as investors remained concerned about the future trajectory of Fed rate cuts. The precious metal was also dampened by the current gains in the value of the USD because a strong dollar makes it more costly for buyers holding other currencies to purchase gold.
On Wednesday, gold had climbed to its highest price ever in the wake of the Fed’s announcement of a 25bps rate cut. However, as the days rolled by, bullion pulled back and is now selling for about $60 less than the price it had peaked at on Wednesday. The pullback started after Fed chair Powell made comments indicating that the central bank wasn’t sure about the outlook for future rate cuts since they were now operating in a fluid environment which made it hard to make a firm decision on what cuts their future meetings would be likely to make.
Under normal circumstances, gold would have surged and sustained its upward momentum in the wake of a rate cut since low-interest environments favor its bullish behavior. This time around, the metal isn’t behaving in that way because of the uncertainty of the Fed regarding the dovish trajectory of monetary policy. This has caused traders to become cautious regarding further additions of gold to their portfolios.
When Powell indicated that rate cut decisions would be made on a case by case basis as they hold their regular meetings, the dollar ticked upwards, and each time the dollar strengthens, there is an inverse effect on the price of gold.
Looking ahead, many factors still point to additional price gains by gold. For starters, Trump’s sustained desire to exert more control over the Fed has cast doubts about the independence of the central bank, and such doubts drive investors towards safe haven gold. This factor is strong and gaining traction, so gold looks likely to appreciate a lot more.
Additionally, geopolitical conflicts, Trump’s tariff policies and central bank gold purchases have kept the demand for gold high. There is therefore sustained upward pressure on the metal’s price and this rules out a trend reversal for the foreseeable future. Gold-linked ETFs have also been accumulating investments at a fast pace, so conditions still remain favorable to further price gains for bullion.
Other precious metals like palladium, silver and platinum have also made significant gains in the wake of the Fed rate reduction. As things stand, companies like Platinum Group Metals Ltd. (NYSE American: PLG) (TSE: PTM) can count on these tailwinds to support their operations and efforts to attract investors.
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