International Gold Price Hits Record High... "Expectations of US Interest Rate Cut"

Rising Demand for Physical Gold Assets as Interest Rate Cut Approaches

The international gold price has reached a new all-time high again. This is due to increased demand for physical assets amid expectations of a Federal Reserve (Fed) interest rate cut in the United States.

According to major foreign media including Bloomberg on the 12th (local time), the international spot gold price rose 1.7% compared to the previous day at 2:10 PM Eastern Time, reaching a record high of $2,554.05 per ounce. Gold futures closed at $2,580.60, up 1.5% from the previous day.

The rise in gold prices is interpreted as reflecting expectations of a U.S. benchmark interest rate cut. When interest rates, which represent the value of money, are lowered, inflation concerns emerge, leading to increased demand for gold, a representative safe-haven asset.

Alex Evkarian, Chief Operating Officer (COO) of Alliance Gold, said, "As the market moves toward a lower interest rate environment, gold is becoming a much more attractive commodity," adding, "We believe there is a higher possibility of frequent small cuts rather than a one-time big cut."

The market is focusing on recent signs of economic slowdown and expects the Federal Reserve (Fed) to lower interest rates at the Federal Open Market Committee (FOMC) meeting on the 17th-18th. According to the Chicago Mercantile Exchange (CME) FedWatch, the federal funds futures market on that day reflected a 72% probability of a 0.25 percentage point (small cut) rate cut by the Fed and a 28% probability of a 0.50 percentage point (big cut) rate cut.

Meanwhile, the three major U.S. stock indices closed higher together, confirming a trend of easing inflation through recently released price indicators. According to the U.S. Department of Labor, the Producer Price Index (PPI) for August rose 0.2% month-over-month, matching the Dow Jones experts' forecast (0.2%). The wholesale price index, PPI, affects the Consumer Price Index (CPI) with a time lag and is considered a leading indicator of retail prices. The U.S. August CPI, released the previous day, rose 2.5% year-over-year, continuing a five-month slowdown and marking the lowest level in three years and six months since February 2021.

However, new unemployment claims for the week of September 1-7 totaled 230,000, exceeding the expert forecast of 227,000. Philip Streible, Chief Market Strategist at Blue Line Futures in Chicago, pointed out, "(The U.S.) labor market continues to be volatile, and if the labor market worsens, the rate cut journey will be prolonged."