Fed Rate Cut Optimism, Safe-haven Demand Fuel Gold's Rally Beyond $4,200

Gold extended its rally to breach $4,200-per-ounce for the first time on Wednesday on expectations of more U.S. interest rate cuts, while broader economic and geopolitical uncertainty also led investors to buy the safe-haven metal.

Spot goldwas up 1.6% at $4,209.49 per ounce as of 0829 GMT, after touching a record high of $4,217.95 earlier in the session. U.S. gold futuresfor December delivery gained 1.5% to $4,227.60.

Gold has risen about 60% so far this year, fuelled by geopolitical and economic uncertainties, expectations of U.S. rate cuts, strong central bank buying, a broader de-dollarisation trend and robust exchange-traded fund inflows.

"Prolongation of the US government shutdown, more dovish comments from Fed officials, and the continued escalation of trade tensions between the U.S. and China are likely to support further gains in gold prices," said ActivTrades analyst Ricardo Evangelista.

"Reaching the $5,000 level does not seem impossible in the medium to long term."

The U.S. dollar dropped against a basket of peers on Wednesday after comments from Federal Reserve Chair Jerome Powell bolstered bets on a series of rate cuts in coming months.

Traders are pricing in a 25 basis-point cut in October with another in December, seen as 96% and 93% chances respectively. (FEDWATCH)

Meanwhile, U.S. President Donald Trump said Washington was considering cutting some trade ties with China, after both countries began imposing tit-for-tat port fees on Tuesday.

Markets are also closely monitoring the risks related to the ongoing government shutdown in the United States and political turmoil in France and Japan.

Gold, traditionally seen as a hedge against political and economic uncertainty and inflation, also tends to do well in low-interest rate environments.

"We are expecting the bull run in gold to continue," said Soni Kumari, a commodity strategist at ANZ.

On a technical basis, gold's Relative Strength Index (RSI) stands at 85, indicating the metal is overbought.

Silverrose 2.7% to $52.81, after having hit a record high of $53.60 on Tuesday, tracking gold's rally and amid tightening supply in the spot market.

Elsewhere, platinumclimbed 1.7% to $1,665.15 and palladiumrose 1.6% to $1,550.50.

Source: TradingView