Rate caution from Fed's Bowman may "restrain" gold rally - HSBC

Investing.com -- Gold prices hovered just below the flatline on Wednesday after hitting a fresh record high in Asian trade.

By 07:07 ET (11:07 GMT), spot gold was lower by 0.03% at $2,656.24 per ounce. It had earlier touched a record high of $2,670.43 an ounce in Asian trade.

The prospect of declining interest rates weighed on the dollar and boosted gold, as traders priced in a lower opportunity cost for investing in non-yielding assets.

The yellow metal also saw some safe haven demand sparked by Israeli strikes in southern Lebanon that have heightened tensions in the Middle East. Support also came from a range of stimulus measures announced by China aimed at rejuvenating sluggish activity in the world's second-largest economy.

Comments this week from Federal Reserve speakers, as well as the release of the central bank's preferred inflation gauge on Friday, could offer further insight into the path ahead for borrowing costs.

Citi analysts have predicted that, following a jumbo 50-basis point reduction last week, the Fed is likely to lower rates by a total of 125 basis points this year. Goldman Sachs, meanwhile, expects cuts of 25 basis points at every meeting from November and until June 2025.

But in a note to clients, analysts at HSBC flagged that recent statements from Fed Governor Michelle Bowman cautioning against steep rate reductions "could restrain" gold's recent strength.

On Tuesday, Bowman defended her decision to vote against the super-sized rate cut, flagging that major inflation gauges remain "uncomfortably above" the Fed's stated target level.

Her stance contrasted with several other Fed officials earlier this week, who argued that the half-point cut was needed because high rates were placing too much pressure on the economy during a time when inflation appears to be fading and strains on labor demand are increasing.

"The scenario outlined by Ms Bowman, while perfectly possible and gold bearish, is clearly not one adopted [by] gold investors who, by initiating repeated record highs, are showing faith in more rapid rate cuts and what that means for gold," the HSBC analysts wrote.

Source: Investing.com