The Fed's rate cut is expected to push gold prices to a new record high.

On Tuesday, gold prices advanced, with expectations of a September interest rate cut boosting demand for bullion.

The price of spot gold increased by 0.7% to $2,438.83 per ounce, while gold futures rose 0.6% to $2,443.80. Earlier in the day, futures reached a high of $2,448.20, which was the best level since May 20 when gold traded for as much as $2,454.20.

Earlier this year, gold prices reached their highest point before declining due to the possibility of prolonged higher interest rates, which decreased investor interest in the precious metal.

The probability of rate cuts this year has increased due to June's softer inflation data and recent dovish comments from Federal Reserve Chair Jerome Powell. The CME FedWatch Tool predicts a three-quarter percentage point cut coming this year, with the first scheduled for September.

The demand for bullion has been boosted by a weakening dollar. On Tuesday, the U.S. greenback regained strength after reaching a five-week low.

Joni Teves, UBS' strategist, stated in a note on Friday that the market quickly rallied on soft U.S. data prints and dovish Fed expectations due to strong sentiment towards gold and a prevalent interest in 'buy-the-dip' among investors.

"We believe that with the market hovering slightly above the psychological $2400 level, the risks are tilted towards the positive side," Teves stated. "We also believe that the positioning is still lean, providing an opportunity for investors to increase their exposure to gold."

In the first half of 2024, gold reached new highs due to a surge in demand from central banks worldwide, fueled by growing global geopolitical tensions. As per UBS, central bank purchases of gold have been at their highest level since the late 1960s.

According to a UBS note from last month, some central banks are questioning the safety of holding USD- and EUR-denominated assets due to financial and debt crises and the war in Ukraine, leading many to instead fill their reserves with gold.

While gold has been affected by weak Chinese demand, Citi predicts that the China central bank and retail consumption of gold will remain weak over the summer. However, the note also highlights the "underlying strength" in demand amid a slow recovery in the China real estate market.

On Tuesday, gold mining stocks advanced, with the gaining 1.2% in the premarket and on track for a fifth winning day in six. Harmony Gold and also rose, with the U.S.-listed shares of Harmony Gold increasing by 6% and the U.S.-listed shares of increasing by 4%, respectively. Additionally, the U.S.-listed shares of DRDGold experienced a significant increase of more than 5%.