Gold prices surged on Monday, approaching their recent record high, as strong expectations of a September interest rate cut followed dovish remarks from Federal Reserve Chair Jerome Powell along with increased safe-haven demand driven by geopolitical risks in the Middle East.

Spot gold climbed 0.2% to $2,514.73 per ounce at 11:41 a.m. ET (1541 GMT), close to last week's record high of $2,531.60. U.S. gold futures similarly advanced 0.2% to $2,550.30.

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“Gold prices rose, with Comex gold up $12 at $2,525 and MCX gold increasing by ₹400 to ₹72,180. The rally follows Jerome Powell's dovish speech, reinforcing expectations of interest rate cuts starting in September 2024. Markets are pricing in cuts of at least 0.75 bps by year-end. However, the precise magnitude, pace, and frequency of these rate cuts will depend on future economic data, particularly inflation, employment figures, and other key economic indicators. As a result, global markets are actively pricing in these potential cuts, and gold, being a non-yielding asset, stands to benefit from the lower interest rate environment. 71500 will acts as good support on any decline to enter in buying Gold whereas 72500 will continue at resistance,” said Jateen Trivedi, VP Research Analyst - Commodity and Currency, LKP Securities.

What's weighing on gold prices?

The dovish signals from Powell's Friday speech, coupled with safe-haven demand and escalating geopolitical tensions in the Middle East, are driving gold prices higher this morning. On Sunday, Hezbollah launched hundreds of rockets and drones at Israel, intensifying the situation.

Powell expressed support for imminent rate cuts on Friday, stating that any further cooling of the job market would be unfavorable. Traders are now fully anticipating a rate cut next month, with a 69.5% probability of a 25-basis-point reduction and a 30.5% probability of a 50 bp cut, according to the CME FedWatch tool. Gold, often considered a hedge against geopolitical risks, typically performs well in a low-interest-rate environment.

Industry officials anticipate that gold demand in major consumers, India and China, will likely increase in the coming months.

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“Gold continues to trade positive and is seen adding to last week's gains, supported by rising rate cut bets by the U.S. Fed that has pushed the dollar and treasury yields lower, and with additional support from safe-haven demand on signs of escalation in the middle-east tensions. Buying among central banks and ETF investors too is expected to continue in the near-term,” said Pranav Mer, Vice President, EBG - Commodity & Currency Research, JM Financial Services Ltd.

Spot silver remained stable at $29.81, reaching its highest level in over a month. Meanwhile, platinum edged up by 0.1% to $964.10, and palladium fell by 0.5% to $958.01.