Fed’s Rate Cut Sparks Gold Surge, Prices Near All-Time Peak

September 18, 2025: After months of intense pressure from the White House to slash borrowing costs, the U.S. Federal Reserve announced its first interest rate cut of the year. Mike Powell, the chair of the Fed, declared that the interest rates will be slashed by 25 basis points. He also declared that there will be two more quarter-point rate cuts later this year. A ripple effect was seen in the bullion market after this news surfaced, and gold surged to its highest level ever.

Factors Contributing to the Rate Cut

There has been a widespread concern in the US regarding slowing employment growth and the rising risk of unemployment. Moreover, the inflation has also moved up significantly, signalling a strained economic environment. Policymakers also indicated expectations of two more rate cuts by the year-end. All these moves have collectively lifted gold’s appeal, as lower interest rates tend to reduce the opportunity cost of holding non-yielding assets.

Record Prices and Inflation Adjustments

In recent times, spot gold has touched a record high of US$3,707.40 per ounce, before easing slightly. This surge has pushed gold past its inflation-adjusted peak from January 1980, when the nominal price of US$850, when adjusted for inflation, equates to about US$3,590-3,600. That earlier benchmark had stood for over four decades.

Year to date, gold has climbed nearly 40%. Among key drivers are expectations of multiple Fed rate cuts, a weakening U.S. dollar, strong demand from central banks, and geopolitical risks. These have combined to fuel safe-haven demand for bullion.

Market Reactions and Short-Term Pullbacks

After touching the record, gold prices slipped due to a modest rebound of the U.S. dollar. The dollar’s rise makes gold more expensive for holders of other currencies, dampening demand somewhat. Gold futures dropped slightly, as traders digested comments from Fed Chair Jerome Powell that suggested caution and a meeting-by-meeting approach to easing.

Implications for India

In India, gold’s rise has direct effects on local jewellery and investment demand. As international prices climb, domestic rates tend to reflect global trends, affected further by currency movements and import duties. For investors who view gold as a hedge against inflation or economic uncertainty, the current gold rally is attracting significant interest.

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