Gold prices surged by one per cent on Friday, July 26, as lower US Treasury yields indicated growing optimism for an interest rate cut by the US Federal Reserve in September. This positive sentiment was fueled by official data showing modest US inflation in June.
### Gold and Silver Prices
Spot gold saw an increase of approximately one per cent, reaching $2,386.99 per ounce after hitting its lowest point since July 9 on Thursday. US gold futures for August delivery also rose by 1.4 per cent to $2,386. On the other hand, spot silver experienced a decline of 0.6 per cent to $27.80 per ounce, marking its worst week since early December.
### Precious Metals Performance
Platinum saw a slight increase of 0.1 per cent at $931.83, while palladium decreased by 1.1 per cent to $897. Silver, platinum, and palladium were all on track for their third consecutive weekly drop. In domestic markets, gold futures were trading one per cent higher at ₹68,135 per 10 grams on the multi-commodity exchange (MCX).
### Driving Factors for Gold Prices
Analysts pointed out that the mixed-to-weaker US data supported the case for potential rate cuts by the US Fed. This data suggested that inflationary pressures and economic activity were diminishing, leading to expectations of rate cuts in September and further in the year. Lower interest rates reduce the cost of holding non-yielding bullion, creating a favorable environment for gold prices.
### Impact of Interest Rates and Demand
The recent uptick in gold prices was also influenced by lower US Treasury yields following the release of economic data. Additionally, the reduction in import duties on gold and silver in India contributed to increased physical demand in the region. Gold premiums in India reached a ten-year high, showcasing a positive impact on overall demand. Any increase in demand from India or China tends to have a ripple effect on the global market.
### Future Outlook for Gold Prices
Moving forward, gold prices are anticipated to continue their upward trend. With the Fed policy meeting on the horizon, market participants are eagerly awaiting any updates regarding a potential rate cut in September. According to Jateen Trivedi, VP Research Analyst at LKP Securities, gold prices could see a boost towards $2,400 in Comex and around ₹70,000 in MCX if a rate cut is announced.
