Gold is flirting with new highs before a key Federal Reserve announcement that will be a bellwether for US monetary policy. 

Gold hit an all-time high of US$2,590/oz on Monday and is trading at $2,577 at the time of writing.

Support for gold is coming from the expectation that this week's Federal Reserve Meeting will end with a much-anticipated rate cut, signalling that economic growth, rather than controlling inflation, is the Central Bank's new priority. 

Lower interest rates are supportive of gold prices as they cause higher inflation, increase the price of dollar-denominated assets, and make gold more attractive as a safe-haven asset compared to dollar reserves or treasury bonds.

If it transpires, this would be the first cut since early 2020. Much of the speculation now hinges on the pace of cuts. A 25bp cut would be slightly slower than expected, while a 50bp cut would seen even more dovish. 

"The latest odds suggest a 65% chance of a 50bp cut according to CME's 'FedWatch'," Berenberg said in a note. "Since the 1980s, only two interest rate cut cycles have begun with rate cuts greater than 25bps".

Macro support

Further pressure on the dollar and support for gold has come from other geopolitical concerns, including increased tensions between Israel and Lebanon and an assassination attempt against former US president Donald Trump.

Analysts at Macquarie are now predicting that gold prices will peak at $2,600 in the first quarter of 2025, "with potential for a spike towards $3,000/oz".

As well as the supportive US monetary policy expectations, Macquarie suggested that the upcoming US election could add more support. 

The financial services group noted that Chinese buying this year has supported gold prices even when other macro factors were lacking.

"We view this as investors using gold as a means of hedging CNY devaluation risk without needing to move money offshore, and that a Trump victory in November - if he were to continue with his proposal for 60% tariffs on all imports from China - could boost the gold price by triggering another round of these buying flows."