Gold prices fluctuated near record levels on Wednesday after the Federal Reserve reduced its benchmark interest rate by a quarter percentage point, with officials signaling two additional cuts planned for this year. The precious metal's recent rally took a brief pause earlier in the day as investors locked in profits and awaited the U.S. Federal Reserve's policy decision.

Despite the recent pullback, gold has emerged as one of the best-performing asset classes, delivering over 40% returns on MCX and nearly 48% on COMEX year-to-date. The rally has been driven by geopolitical tensions, trade uncertainties, expectations of global rate cuts, and central bank purchases.

Fed Decision and Market Reaction

The Fed cited growing labor market weakness to justify the rate cut, noting unemployment has edged up and downside employment risks have increased, while acknowledging inflation remains somewhat elevated. Following the announcement:

• Spot gold traded at $2,687.86 per ounce after reaching a fresh record of $2,707.57.
• The S&P 500 climbed and Treasury yields reversed earlier gains.

Gold Market Dynamics

Several factors are currently influencing gold prices:

1. Dollar Strength: The dollar index rose 0.1% earlier in the day, putting pressure on gold prices.
2. U.S. Treasury Yields: Yields remained near five-month lows, typically a supportive factor for gold.
3. ETF Holdings: SPDR Gold Trust, the world's largest gold-backed exchange-traded fund, reported a 0.32% increase in holdings to 979.95 metric tons, indicating sustained investor interest.
4. Central Bank Purchases: Continued buying from central banks provides price stability.

Indian Gold Market

In the Indian market, gold prices saw a decrease across various purity levels earlier in the day:

Market Outlook

Motilal Oswal expects the bull run to continue with intermittent corrections, recommending a buy-on-dips strategy. The brokerage has set domestic targets of ₹1.13 lakh to ₹1.20 lakh per 10 grams and global targets of $3,800 to $4,000 per ounce on COMEX.

Key risks to the bullish outlook include a stronger US dollar, higher real interest rates, and easing geopolitical tensions. Physical demand in India has slowed due to elevated prices.

As the market digests the Fed's decision and forward guidance, gold prices may experience further volatility. Traders and investors will be closely monitoring key support and resistance levels in the coming sessions, with particular attention to any remarks from Federal Reserve Chair Jerome Powell for guidance on future monetary policy easing.

Gold prices have surged to unprecedented levels, marking a significant milestone in the precious metals market. Spot gold climbed to reach $3,698.00 per ounce, setting a new all-time high, with Indian futures trading near ₹1.10 lakh per 10 grams.

Jefferies' Christopher Wood Bullish on Gold and Bitcoin

Christopher Wood, Jefferies' Global Head of Equity Strategy, has expressed strong bullish views on both gold and Bitcoin as long-term hedges against dollar debasement. Wood allocates 10% of his global equity portfolio to gold mining stocks and 6% to Bitcoin.

Wood had set a $3,600.00 target for gold in 2002, which has now been achieved. He believes gold has entered a new trading range after breaking above $3,500.00 per ounce. Wood highlighted gold mining stocks as particularly exciting due to higher gold prices and lower energy costs.

Bitcoin Outlook

Regarding Bitcoin, Wood views the current consolidation phase as healthy and expects the next major move to be upward. He noted a demographic divide, suggesting millennials may prefer Bitcoin over gold, though he would choose gold if forced to pick one asset due to its historical track record.

Dollar Weakness and Federal Reserve Expectations

The surge in gold prices is largely attributed to a weakening U.S. dollar. The greenback is currently trading near a 2-1/2-month low against the euro and hovering close to a 10-month low versus the Australian dollar. This dollar depreciation makes gold more attractive to holders of other currencies, potentially driving up demand.

Market participants are keenly anticipating the Federal Reserve's next move, with expectations leaning heavily towards a rate cut. Traders are pricing in an almost certain 25-basis-point reduction at the upcoming September 17 meeting. There's also a slim possibility of a more aggressive 50-basis-point cut, though this remains a less likely scenario.

Impact of Lower Interest Rates

The prospect of lower interest rates is particularly bullish for gold. As a non-yielding asset, gold becomes more attractive in a low-interest-rate environment. When rates are cut, the opportunity cost of holding gold decreases, potentially spurring increased investment in the precious metal.

SPDR Gold Trust Holdings Increase

Reflecting the growing interest in gold, the SPDR Gold Trust, the world's largest gold-backed exchange-traded fund, reported an increase in its holdings. The trust's gold holdings rose by 0.21% to 976.80 tonnes, indicating a rise in investor appetite for the precious metal.

Performance of Other Precious Metals

While gold stole the spotlight, other precious metals showed mixed performance:

As the Federal Reserve's decision looms and currency markets remain volatile, all eyes will be on gold to see if it can maintain its record-breaking momentum.