Gold rises with U.S. rate cut optimism, approaching its May record high

Gold prices rose on Tuesday as comments from Federal Reserve Chair Jerome Powell bolstered the case for a September rate cut, while investors awaited more U.S. economic data for further monetary policy cues.

Spot gold gained 0.7% to $2,440.01 per ounce. The bullion hovers only slightly below the record high of $2,449.89 hit on May 20.

Powell said on Monday the three U.S. inflation readings over the second quarter of this year “add somewhat to confidence” that the pace of price increases is returning to the Fed’s target in a sustainable fashion. Investors were awaiting U.S. retail sales data due at 1230 GMT on Tuesday for further direction.

Gold hit multiple new highs in April and May and then retreated in June when U.S. interest rate cut forecasts were pushed out, and physical demand started to soften in response to the high prices. In July, greater optimism for a September rate cut has driven the non-yielding bullion higher again.

“The uncertainty around the prolonged waiting pattern for U.S. interest rate cuts could drive a soft third quarter for the metal before a rally gathers pace to drive gold to a fresh new high,” said Nitesh Shah, commodity strategist at WisdomTree.

WisdomTree models indicate that gold was overvalued by 7% at the end of June, suggesting that most of that will be returned in the current quarter.

Purchases by central banks, a crucial category of demand, have been cooling over the last few months with the lack of buying by the Chinese central bank being the main driver.

However, with the expected nearing of rate cuts, global physically backed gold exchange-traded funds (ETFs), another crucial category of demand, started purchases again after several years of outflows.

Gold ETFs, storing bullion for investors, saw inflows last week of $0.5 billion, or 7.6 metric tons, according to the World Gold Council.