Global gold prices reached a two-week high on Thursday, August 1, as US Federal Reserve Chair Jerome Powell hinted at the possibility of cutting interest rates as early as September.

This development has influenced gold’s trajectory in domestic markets too.

As of 0650 GMT, spot gold was trading at $2,445.39 per ounce, having earlier reached its highest point since July 18.

This was only $38 below the record high of $2,483.60 set on July 17.

Meanwhile, US gold futures rose by 0.7% to $2,490.10.

In India, gold contracts for August delivery traded higher ₹415 or 0.6% at ₹70,070 per 10 grams in a business turnover of 19,584 lots on the Multi Commodity Exchange (MCX).

Driving factors

Fed’s rate policy and economic signals

The Federal Reserve’s potential interest rate cut has supported gold prices.

Jerome Powell’s recent statement that rates might be reduced as soon as September, provided the US economy progresses as expected, suggests a potential end to the Fed’s prolonged battle against inflation. G

old, which offers no yield, typically performs well in a low-interest-rate environment.

“The trend for gold remains bullish and prices should hit $2,500 this year as the Fed lowers interest rates,” noted Peter Fung, head of dealing at Wing Fung Precious Metals, in a Reuters report.

However, market participants are also wary of profit-taking opportunities as prices approach this level.

“Gold bugs may want to warrant some caution above $2,500, given gold’s reluctance to hold onto gains around these levels,” warned Matt Simpson, a senior analyst at City Index.

He also highlighted that Friday’s U.S. payrolls report could impact gold prices.

“If the data comes in much hotter than expected, that could dent gold as we head towards the weekend,” he was quoted as saying in a Reuters report.

Geopolitical tensions

Geopolitical developments, such as the assassination of Hamas leader Ismail Haniyeh in Tehran, have intensified concerns over escalating conflicts in the Middle East.

This situation has supported gold prices as investors seek safe-haven assets amid heightened uncertainty.

“Geopolitics is increasingly more supportive for gold in the medium and long term,” Nicky Shiels, head of metals strategy at MKS PAMP SA, was quoted as saying in the Reuters report.

Renisha Chainani, Head of Research at Augmont – Gold For All, commented on the impact of these tensions: “Gold prices have reached new highs above $2,500 in international markets as investors are fleeing to safety as tensions between Iran and Israel escalate. Furthermore, the Fed ended its meeting yesterday with the fed funds rate remaining between 5.25% and 5.5%.”

Domestic market sentiment

Colin Shah, MD of Kama Jewelry, emphasised the impact of the Fed’s decisions on domestic gold prices and exports.

“With inflation moving towards the desired target of 2% as set by the US Central Bank, a possible rate cut hinted during September is expected to have a cooling effect on the gold prices. The price of the yellow metal is currently hovering at an attractive level post the announcement of Customs duty cut in the Budget,” he said.

Outlook and investment strategy

The outlook for gold remains optimistic, with several analysts projecting further gains as the year progresses.

Investors should adopt a cautious approach, considering profit-taking opportunities while remaining alert to any shifts in economic indicators or geopolitical developments.