Gold (XAU/USD) surged more than 1% on Wednesday, reaching $2,356, as softer-than-expected economic data from the United States bolstered expectations that the Federal Reserve (Fed) might cut interest rates by September.
The latest Federal Open Market Committee (FOMC) meeting minutes revealed that while “several participants” were prepared to raise rates if inflation remained high, the consensus acknowledged that the current policy stance is restrictive. They also noted that the cooling economy might prompt a reaction to unexpected economic weaknesses.
Adding to this sentiment, US business activity in the services sector, as reported by the Institute for Supply Management (ISM), contracted after reaching its highest level since August 2023. This contraction, along with weaker labor market data—including a rise in unemployment benefit claims and lower-than-expected hiring by private companies—has led to a reassessment of Fed interest rate expectations.
The labor market data released on Wednesday came as a surprise, showing softness despite Tuesday’s stronger-than-expected Job Openings and Labor Turnover Survey (JOLTS) report. Traders are now turning their attention to Friday’s Nonfarm Payrolls (NFP) report for further insights, as US markets will be closed on Thursday in observance of Independence Day.
Economic Indicators Drive Gold’s Rally
The softer economic indicators have significantly influenced market sentiment. The weaker-than-expected data has shifted investor focus towards potential monetary easing, which typically benefits gold as a non-interest-bearing asset.
Key highlights from the recent data include:
ISM Services Index: A contraction in business activity within the services sector, which had previously been a strong performer.
Labor Market: An unexpected rise in unemployment benefit claims and lower-than-anticipated private sector hiring.
These indicators suggest a slowing economy, reinforcing the view that the Fed may need to cut rates to support growth. The anticipation of such a policy shift has fueled gold’s recent rally, positioning it as a preferred investment in times of economic uncertainty.
As the market awaits the crucial Nonfarm Payrolls report, the outlook for gold remains positive, with potential further gains if the data supports the case for monetary easing. The combination of a restrictive current policy stance and weaker economic signals continues to drive speculation around future Fed actions, making gold an attractive asset for investors seeking stability amidst economic fluctuations.
