A view shows an ingot of 99.99 percent pure gold in a workroom during production at Krastsvetmet precious metals plant in the Siberian city of Krasnoyarsk, Russia.  (Reuters Photo)

BENGALURU- Gold prices surged to record highs on Monday, driven by a softer dollar and expectations of a larger interest rate cut by the US Federal Reserve this week.

Spot gold was up 0.4 percent to $2,585.54 per ounce, after hitting an all-time high of $2,588.81 earlier in the session.

US gold futures edged 0.1 percent higher to $2,613.40.

The dollar weakened 0.2 percent, making gold less expensive for other currency holders.

“The prospect of the Fed potentially wielding the axe by delivering a 50 basis point cut this week has sent gold and the dollar in opposite directions,” said Tim Waterer, chief market analyst at KCM Trade.

“Overall conditions for gold remain favorable, with further gains likely. If the dollar continues its downward trend, gold could reach $2,700 by year-end.”

All eyes will be on the Fed this week as speculation mounts over the extent of the rate cut at its Sept. 17-18 monetary policy meeting and the pace of future reductions. The Bank of England and Bank of Japan are also announcing policy decisions later this week.

Markets are currently pricing in an 59 percent probability of a 50 bps cut on Wednesday, up from 43 percent on Friday, according to the CME FedWatch tool. This would be Fed’s first rate cut since 2020.