Gold prices increase slightly amid expectations of Fed rate cut
Gold prices saw a marginal increase on Thursday as softer-than-expected U.S. economic data raised hopes that the Federal Reserve will cut interest rates as soon as September.
In the UAE, gold prices saw an AED1.75 increase with 24-carat gold inching up to AED285.50 per gram, while 22-carat gold rose to AED264.25. Twenty-one-carat gold was at AED256 while 18-carat gold reached AED219.25.
Globally, spot gold saw a 0.01 percent decline to $2,357.84 per ounce, as of 5:10 GMT. Meanwhile, U.S. gold futures lost 0.13 percent to $2,366.30.
Weak U.S. employment data
Gold prices declined following the release of weak services and ADP employment reports, which signaled a slowing economy. Another report also revealed an increase in initial applications for U.S. unemployment benefits last week, further raising concerns over the labor market.
Investors now await the U.S. nonfarm payrolls (NFP) data, due on Friday, for a better overview of the U.S. economy’s growth outlook and potential rate cuts.
Dollar declines
The dollar index declined 0.06 percent to 105.34, making greenback-priced bullion cheaper for other currency holders. Analysts believe that it is not likely that the dollar index will retest the 106 benchmark. Therefore, they expect investors to shift from buying the declining dollar to investing in gold.
Markets are now pricing in a 74 percent chance of a Fed rate cut in September, according to the CME FedWatch Tool. Lower rates reduce the opportunity cost of holding non-yielding assets like gold, thus supporting their prices.
In their last meeting, Fed officials acknowledged that the U.S. economy appeared to be slowing but still adopted a wait-and-see approach before committing to rate cuts, according to the Fed’s June 11-12 meeting minutes.
Additional insight
With the expectation of a Fed rate cut in September and the decline in the dollar index, investors are increasingly turning to gold as a safe-haven asset to protect their investments amidst economic uncertainties. The potential for lower interest rates further strengthens the appeal of gold as it reduces the opportunity cost of holding the precious metal.
Other precious metals
As gold prices declined, the precious metals market witnessed mixed movement. Spot silver declined by 0.22 percent to $30.40 while palladium lost 1.06 percent to $1,018.71. However, platinum gained 0.90 percent to $1,006.00 while copper rose 2.22 percent to $4.54.
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