Gold prices extend gains to hit new record on Fed rate cut optimism

Gold prices continued to notch new records Wednesday, lifted by increasing conviction that the Federal Reserve will cut interest rates in September following comments from Fed Chair Jerome Powell.

Spot gold prices rose 0.5% to $2,482.29 per ounce, hitting an all-time high according to LSEG data. Gold futures climbed to $2,478.4 an ounce.

On Monday, Powell said the Fed won't wait for inflation to reach the central bank's 2% target before it begins cutting, due to the delay in policy effects. He said the Fed is looking for "greater confidence" that inflation will return to the 2% level. The monthly inflation rate dipped in June — the first time in over four years.

And that has given market watchers confidence. According to the CME FedWatch tool, traders are convinced the Fed will cut rates by September. As interest rates fall, gold tends to become more appealing compared to fixed-income assets such as bonds.

"The move has been ignited by signs of slowing inflation. That has been followed up by weak economic data," ANZ's senior commodity strategist Daniel Hynes wrote in a note.

Gold prices have been breaching new highs in recent months due to its appeal as a safe-haven asset against the backdrop of escalating Middle East tensions, as well as central banks' purchase of bullion.

"Gold's ability to find support in any condition this year is worth highlighting," said Vivek Dhar, Commonwealth Bank of Australia's director of mining and energy commodities research.

"These drivers defied a stronger US dollar, which was largely driven by the market delaying expectations of Fed Fund rate cuts," said the research analyst, adding that gold prices could rise above the bank's forecast of $2,500 per ounce by the end of the year.