Gold prices rise as dollar weakens and focus shifts to U.S. inflation data
Gold prices surged over 1% on Thursday, bouncing back from a more than two-week low as the dollar lost ground and market attention turned towards key U.S. inflation figures to gain insights into the Federal Reserve’s monetary policy trajectory.
As of 1804 GMT, spot gold had climbed 1.2% to $2,324.53 per ounce after hitting its lowest level since June 10 on Wednesday. Meanwhile, U.S. gold futures settled 1% higher at $2,336.60.
Reasons behind the gold price rebound
The rise in gold prices was fueled by a weakening dollar amid a mixed bag of economic data from the U.S. The figures revealed a slowdown in economic activity in the first quarter of 2024, with GDP numbers indicating a moderation in growth. Additionally, an incremental uptick in the weekly unemployment rate boosted expectations of a potential interest rate cut in the latter half of the year, supporting gold’s recovery, as per ICICI Direct Research.
Economic headwinds and dollar movements impact gold prices
The slowdown in economic momentum was underscored by reports of declining business spending on equipment in May and a decrease in exports leading to an increase in the goods trade deficit. With the government’s third estimate of GDP validating a significant slowdown in economic growth during the first quarter, uncertainties loom large, making gold an attractive choice for investors holding other currencies.
Furthermore, the dollar’s 0.2% decline against a basket of currencies coupled with a drop in benchmark 10-year yields to 4.2845% enhanced the allure of gold as a safe-haven investment.
Market expectations and upcoming data
Investors, as per LSEG’s FedWatch data, foresee roughly two interest-rate cuts this year, in contrast to the U.S. central bank’s projection of just one cut. Lower interest rates diminish the opportunity cost of holding non-interest-bearing assets like gold.
The upcoming release of the Personal Consumption Expenditures Price Index (CPE), the Fed’s preferred inflation measure, scheduled for Friday, is likely to provide further clarity on the inflationary outlook, influencing gold prices.
External factors affecting market sentiment
Market participants are closely monitoring for any potential intervention by Japanese authorities amidst the yen’s near 38-year low. Economic uncertainties typically drive investors towards assets like gold, amplifying its attractiveness during tumultuous times.
Mixed performance among other precious metals
In contrast to the bullish trend seen in gold, spot platinum witnessed a 2.2% decline to $988.75. Palladium remained stable at $929.00, while silver managed to gain 0.5% reaching $28.90.
Insights on gold price movements
Additional insight: The current economic landscape marked by uncertainties and dollar movements continues to shape gold’s price trajectory. As investors brace for potential interest rate cuts and inflation data releases, gold remains a go-to asset in times of market volatility and economic unpredictability. In times of economic slowdown, gold tends to shine brighter as a safe haven for investors seeking stability in their portfolios.
