Gold Rises to Record Highs Near $3,700

Gold prices have reached record highs since Monday with   Spot Gold (XAU/USD) trading at just over $3,680 on Tuesday (16 September), which is very close to its all-time high of $3,700. The gold’s ascent happened just one day before the Federal Reserve (Fed) gathers to decide on its policy decision on Wednesday. A combination of a weak dollar, treasury yields falling and geopolitical challenges have helped support the safe-haven metal.

Fed rate cut bets power gold’s momentum

The primary force behind the Gold’s run is the market’s expectation that the Federal Reserve will deliver its first interest rate cut of 2025 this week. A 25-basis-point cut is widely expected by investors, though some had speculated about an even more aggressive half-point cut before recent persistent inflation data dampened those expectations.

Lower rates make Gold more appealing by reducing the opportunity cost of holding a non-interest-bearing asset. Traders are not only interested in the cut itself but also in the Fed’s new economic projections and “dot plot,” which will provide a hint of how far and how fast the easing cycle can run.

If Chairman Jerome Powell suggests a cautious approach, Gold might experience some short-term pullback. But confirmation of a steady easing path could give the metal a needed push. It may finally overcome $3,700 and reach new highs.

Greenback weakens

The greenback was under pressure, with the Dollar Index (DXY) falling to multi-week lows. This weakness has helped the yellow metal, since a weaker dollar makes gold cheaper for overseas buyers, increasing demand and pushing prices higher.

The weaker dollar has added to global concerns at a time when the Fed is under pressure. President Donald Trump has demanded that the Fed deliver more interest rate cuts. This has further undermined confidence in the dollar and offered support to gold.

Treasury yields fall

As US Treasury yields have fallen, gold has risen. The 10-year Treasury note currently yields around 4.03%, lower than an intraday peak of 4.089%. Weaker yields make government securities less appealing and increase the appeal of gold, with investors flocking to the safe-haven metal. The weaker yields have been partly driven by growing expectations that the Fed will cut rates in the coming months.

Economic data to provide direction to traders

While the Fed decision is important, other key macroeconomic releases also matter. They could influence the near-term direction of the markets.

The release of the United States August Retail Sales figures is one key release for traders to watch. Retail sales are expected to rise to 0.2%, which is less than the 0.5% reported in July. Weak consumer spending would support the case for interest rate cuts, and further support gold. On the other hand, better-than-expected figures may weigh on gold.

Industrial Production is also expected to drop by 0.1% in August, adding to concerns of an economic slowdown. UK and Canadian inflation data and Australia’s pending jobs report will also shed more light on the global economic outlook.

Geopolitics support safe-haven flows

Geopolitical developments are also helping gold’s ascent as in the Middle East, Israel launched an invasion of Gaza City, further deteriorating its relations with Hamas.

In Ukraine, increased drone and missile strikes against Russian refineries have increased concerns and added to risk aversion in markets, with investors turning to gold. These geopolitical tensions in combination with lower yields and a weaker dollar will provide ample support to the precious metal.

Political interference and the Fed’s independence

This is not the first time that President Trump has openly pressured the central bank to act more aggressively and cut rates. According to 82% of respondents to the September CNBC Fed Survey, Trump’s Fed actions are seen as limiting or eliminating the central bank’s independence. Additionally, the respondents see that Trump’s actions towards the Fed will result in weaker growth, higher inflation and unemployment and a weaker dollar.

A series of events and developments have generated suspicions regarding Trump’s interference in the Fed’s policy path which has sparked market uncertainty and increased appeal for the precious metal. The US appeals court blocked an attempt to remove Fed Governor Lisa Cook, and in the Senate, Stephen Miran, an economic advisor to President Trump, was narrowly confirmed to the Fed Board. Miran may advocate for a larger rate cut than markets expect when he votes on Wednesday.

FAQs on gold rally

Why is gold rising towards $3,700?

Gold is rising due to Fed interest rate cut expectations, a weaker US dollar, falling Treasury yields, and geopolitical risks.

How do Fed rate cuts influence gold prices?

Decreasing interest rates reduce the opportunity cost of owning non-interest-bearing assets like gold, making it more attractive to investors.

How does the US Dollar affect the price of gold?

A weaker dollar makes gold cheaper for foreign investors, raising demand and pushing prices higher.

Will gold push higher above $3,700 this week?

Yes, if the Fed sounds dovish and reveals its intentions to continue with rate cuts, gold can rise above $3,700. However, if they strike a cautious tone, this can lead to a short-term correction.

Are geopolitical risks supporting gold?

Yes, Middle East and Eastern European conflicts are prompting safe-haven flows into gold.

What are the risks that can pull gold down?

Strong US data, a less dovish Fed tone, or profit-taking near record highs can temporarily weigh on prices.

Conclusion

Gold’s sharp rise and ascent near record highs of $3,700 an ounce demonstrates the precious metal’s continuous safe-haven appeal despite economic and political global uncertainties. With the Federal Reserve policy decision nearing, the next few days will be critical and will reveal whether the gold rush will continue or whether it will fizzle out.  

A cocktail of falling Treasury yields, weak greenback geopolitical uncertainty and Fed interference may prove to be a blessing for the gold, which will continue to rise. While volatility cannot be controlled, the long-term case for gold remains intact as global markets closely monitor US monetary policy decisions and geopolitical developments.

Disclaimer: This information is not considered as investment advice or an investment recommendation, but instead a marketing communication. IronFX is not responsible for any data or information provided by third parties referenced, or hyperlinked, in this communication.