Gold Surges 33% Yearly, Hits Record 3508.73 USD as Fed Rate Cut Looms

On Tuesday, during the Asian morning session, the price of spot gold surged past the 3500 USD mark, setting a new historical high of 3508.73 USD per ounce. This surpassed the previous high recorded in April. Throughout the year, international gold prices have accumulated an increase of over 33%.

The surge in gold prices has been driven by a combination of factors, including a weakening US dollar and heightened expectations of a rate cut by the Federal Reserve this month. The gold market has been experiencing a bullish trend, with prices rising for the sixth consecutive trading day. This upward momentum has been fueled by the anticipation of a rate cut by the Federal Reserve, which is expected to further weaken the US dollar. The weakening dollar makes gold more attractive to international buyers, as it reduces the cost of purchasing the precious metal.

Over the past three years, both gold and silver prices have more than doubled due to increasing risks in geopolitics, economics, and global trade. These factors have driven demand for these traditional safe-haven assets. Additionally, the global bond market sell-off has led to more risk-averse funds flowing into the precious metals market.

Recent attacks by the US President on the Federal Reserve have added to investor concerns about the central bank's independence. This has the potential to further erode confidence in US assets. The market is awaiting a decision from the US courts on whether the President has valid grounds to remove Federal Reserve Governor Cook from the central bank. Additionally, a recent ruling by the US Federal Court of Appeals declared most of the President's global tariff policies illegal, adding to the uncertainty faced by US importers.

Analysts have noted that the current market concerns extend beyond the Federal Reserve to the overall strength of US institutions. From a safe-haven demand perspective, this is beneficial for gold. Following the cautious remarks by Federal Reserve Chairman Powell last month, which opened the door to a rate cut, market expectations are high that the Federal Reserve will reduce rates this month. This could enhance the appeal of zero-yield assets like gold. The key US non-farm payroll report, scheduled for release this Friday, could further highlight the weakening labor market, providing additional justification for a rate cut.

Analysts have also pointed out that with the breakthrough of technical resistance levels, gold is likely to continue its upward trend this week. The gold ETF holdings increased by the largest amount since April last week, and further net inflows are expected this week, with non-commercial futures holdings also likely to increase.

In addition to gold, silver prices have also seen significant gains this week. On Monday, spot silver prices broke through the 40 USD per ounce mark for the first time since 2011, reaching 40.84 USD. This year, silver prices have risen by over 40%, outperforming gold. The demand for silver has been driven by its industrial applications in clean energy technologies such as solar panels. The Silver Institute has noted that the silver market is heading towards a fifth consecutive year of supply deficit. A weaker dollar has also boosted purchasing power in major consuming countries like China and India.

Analysts have attributed the rise in silver prices to expectations of a rate cut, as well as supply market tightness. The continuous expansion of silver ETF holdings for the seventh consecutive month in August has depleted freely available silver stocks in the London market, leading to ongoing market tightness. The silver lease rate, which reflects the cost of short-term metal borrowing, remains high at around 2%, far above the near-zero normal level. Additionally, the proposal by the US Geological Survey to include silver in the list of critical minerals for the US, which already includes palladium, has provided further support for silver prices.