Gold prices rebound after three days of decline
The precious metal rose, supported by expectations of an interest rate cut and market optimism about a potential agreement between Washington and Beijing.
Gold saw a partial recovery after a three-day sell-off, as buyers returned ahead of an expected interest rate cut by the U.S. Federal Reserve.
The precious metal climbed toward $4,000 an ounce on Wednesday, after falling more than 4% in the previous three sessions. Investors are anticipating a 25-basis-point rate cut, although Fed Chair Jerome Powell is unlikely to offer further forward guidance. Lower borrowing costs typically support the prices of non-yielding precious metals.
The Wall Street Journal reported that the United States would roll back some tariffs if China cracked down on exports of chemicals used to produce fentanyl.
A deal between the world's two largest economies would further boost market sentiment, after a rally in technology stocks fueled optimism about the artificial intelligence boom.
Sharp Decline After Record Rise
Gold prices fell sharply after a powerful rally that propelled it to a record high above $4,380 an ounce last week, a surge some traders deemed excessive.
ven after the decline, the metal remains up nearly 50% year-to-date, buoyed by central bank purchases and what is known as "tax trading," as investors seek to avoid government bonds and currencies to hedge against widening fiscal deficits.
The rally attracted both institutional and retail investors through gold-backed exchange-traded funds (ETFs), although significant outflows have eroded some of this support. Investors withdrew nearly $1 billion from State Street's SPDR Gold Shares ETF on Monday, the largest withdrawal since April 22, according to data compiled by Bloomberg.
These outflows came as total investor holdings in gold ETFs recorded their largest decline in six months.
Gold Expected to Reach $5,000 an Ounce
The rapid rise and subsequent decline of gold was a key topic of discussion at the London Bullion Market Association's Precious Metals Conference, held this week in Kyoto, Japan.
An optimistic mood prevailed at the conference, with a survey of 106 participants predicting that gold would trade at around $5,000 an ounce within a year.
"Gold continues to make bottoms, but bulls will take comfort from its resilience around the $3,900 level in the first-month futures contract," wrote Chris Weston, head of research at Pepperstone Group, in a note.
"There are now clearer signs that buyers are starting to enter the market, and the recent sell-off may be coming to an end," he added.
Anticipation of a US Rate Cut
Meanwhile, bets that the Federal Reserve will cut interest rates later on Wednesday boosted demand for riskier assets.
While lower borrowing costs typically benefit non-interest-bearing precious metals, the prospect of monetary easing also boosted stock markets, amid expectations that major technology companies would outperform analysts' forecasts.
Five companies representing about a quarter of the S&P 500 are scheduled to report their earnings on Wednesday and Thursday.
Spot gold rose 1.1% to $3,996.90 an ounce at 7:22 a.m. in London. The Bloomberg Dollar Index gained 0.2%. Silver climbed nearly 2%, while platinum and palladium also rose.
Following the interest rate cut of 25 basis point, gold is expected to remain stable in the interim.
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