Gold hits record high as US rate cut nears

AFP | London, United Kingdom

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US and European stock markets extended gains, gold hit a record high and the dollar fell on Friday ahead of an expected US interest-rate cut next week. More data this week suggesting the Federal Reserve was winning the battle against inflation provided an extra kick for global equities after recent drops caused by worries of a possible US recession.

Wall Street shares were up near midday deals while European markets closed in the green, a day after the European Central Bank cut its own rates for the second time this year as inflation cools.

Asia's main stock markets diverged as they closed out the week. The price of gold struck an all-time high of $2,583.45 per ounce, as lower interest rates tend to prop up the precious metal.

Among individual companies, Boeing shares fell 0.3% after Seattle region workers overwhelmingly rejected a four-year contract proposal, launching a strike that will shutter two major factories.

Investors are focused on the highly anticipated Fed meeting on Wednesday after data this week showed US consumer inflation slowed more than expected in August to 2.5%. Having slashed rates in the early months of the pandemic, the Fed began hiking them in 2022 as inflation started to take hold, and they kept lifting until rates hit a two-decade high.

Now, with disinflation seemingly kicking in and the labour market softening, decision-makers are tipped to start cutting again, with debate on whether it will be a 25 or 50-basis-point move.

"Fears that the Federal Reserve may have kept interest rates too high for too long, thereby risking an economic 'hard landing' have dissipated," said David Morrison, senior market analyst at financial services provider Trade Nation.

Markets had panicked last month after weak US jobs figures raised concerns that the world's economy could be heading towards recession. Analysts said the odds of a 50-basis-point increase have risen this week.

"Gold is the ultimate inflation hedge, so it has received a boost from prospects of a 50bp rate cut from the Fed," said Kathleen Brooks, research director at XTB trading platform.