Gold smashes record on Fed cut bets and eroding trust

Gold soared to a record high this week, propelled by bets on US Federal Reserve rate cuts, a tumbling US dollar, and mounting fears over the US central bank's independence under US President Donald Trump.

The spot price of gold hit an all-time peak of $3,578.50 per ounce on Wednesday before slipping 0.4 percent in trading on Thursday as some investors locked in profits. Despite the slight pullback, the metal has gained over 30 percent this year.

The rally is fundamentally fueled by expectations of the US Fed's looser monetary policy. According to CME Group's FedWatch tool, markets are pricing in a 98 percent probability of a rate cut this month.

"Supportive for gold is the bearish dollar outlook underpinned by expectations of Fed cuts, investors distancing from US assets and tariff-related economic uncertainty," said Ricardo Evangelista, senior analyst at ActivTrades.

Compounding the bullish momentum is a crisis of confidence in US institutions. Trump's public criticisms of Fed Chair Jerome Powell and reported efforts to influence the board have sparked fears that the US central bank's political independence is under threat, a scenario European Central Bank President Christine Lagarde called a "very serious danger" to the global economy.

"Growing concerns over the independence of the US central bank are further undermining trust in dollar-denominated assets and pushing investors toward gold," traders at Heraeus Metals said.

Meanwhile, the dollar has fallen nearly 11 percent since January, making gold cheaper for overseas buyers. Further uncertainty stems from Trump's trade agenda, which is headed for a showdown at the Supreme Court to validate his expansive tariff powers.

This environment is driving a structural shift among institutional buyers. Data from the World Gold Council shows central banks globally plan to increase their gold holdings as a share of reserves over the next five years, while reducing their dollar exposure.

With these fundamental factors intact, financial institutions like Standard Chartered expect further highs in gold.

(With input from Reuters)