Weekly gains driven by hopes of Fed rate cuts
Although gold has retreated from its peak, the precious metal is poised for weekly gains, supported by growing expectations of further interest rate cuts in the US. The Federal Reserve’s recent decision to cut interest rates by an aggressive 0.5% has helped boost gold prices, which are up 1.8% so far this week. The prospect of new cuts later this year continues to provide strong tailwinds.
According to the CME FedWatch Tool, market analysts are increasingly considering a 51% chance of another 50 basis point rate cut in November. Such cuts typically reduce the opportunity cost of holding non-yielding assets like gold, further strengthening their appeal. Capital.com’s Kyle Rodda highlighted that gold prices are also benefiting from China’s economic stimulus efforts, which have weakened the dollar.
Dollar Weakness Supports Gold
The dollar has been in a downtrend for four weeks in a row, increasing gold’s attractiveness to holders of other currencies. As traders turn their attention to upcoming inflation data, U.S. Treasury yields have remained largely stable. The yield on the benchmark 10-year government bond is hovering around 3.789%, with little movement ahead of major economic reports.
Focus on inflation data and market sentiment
Investors are eagerly awaiting the release of the key personal consumption expenditures (PCE) price index, the Federal Reserve’s preferred inflation gauge, due later today. Economists expect the overall PCE to show an increase of 2.3% year-over-year and a slight increase of 0.1% from the previous month. In addition to the PCE figures, data on personal income and spending will be released, which will likely influence market sentiment and future Fed policy.
According to BMI Research, ongoing geopolitical tensions, such as conflicts in the Middle East and the upcoming US presidential election, are additional factors driving gold prices higher. These concerns, combined with expectations of looser monetary policy, support the bullish outlook for gold in the coming months.
Market Forecast: Bullish Outlook for Gold Prices
Given ongoing geopolitical risks and the high likelihood of further US interest rate cuts, the near-term outlook for gold remains bullish. Continued dollar weakness and anticipation of the Federal Reserve’s accommodative monetary policy are expected to push gold prices higher.