Gold prices (XAU/USD) climbed by half a percent on Thursday, trading in the $2,620 range following a volatile session driven by the release of key US inflation and labor market data.
While inflation figures pointed to ongoing price pressures, weaker-than-expected labor market data suggested that the Federal Reserve may lean towards a more accommodative monetary policy stance, potentially boosting gold. Lower interest rates, often seen as positive for gold, reduce the opportunity cost of holding the non-yielding asset.
Fed Signals and Market Reactions
Federal Reserve Bank of San Francisco President Mary Daly indicated on Wednesday that further rate cuts might be necessary before year-end, stating that she was more concerned about the labor market than inflation. Daly’s comments contributed to the growing expectation of a 25 basis point rate cut at the next Fed meeting. According to the CME FedWatch Tool, the probability of a 25 bps rate cut rose to 89% following the data release, while the chances of no change fell to 11%.
Gold had already been rallying on the back of recent speeches by Fed officials, which were seen as either neutral or dovish in tone, according to the FXStreet FedTracker.
Geopolitical Tensions Provide Additional Support
Beyond economic factors, safe-haven demand for gold remains robust as geopolitical tensions continue to escalate, particularly in the Middle East. Israel has intensified attacks on targets in Lebanon, with markets on edge amid concerns of potential retaliation against Iran following a recent ballistic missile strike.
In the latest developments, Israeli Prime Minister Benjamin Netanyahu held talks with US President Joe Biden on Wednesday, but no public statement was made regarding a possible Israeli response to Iran. Reports suggest the Biden administration is urging Israel to focus its retaliation on military targets. Israel’s security cabinet is expected to meet soon to discuss further actions.
Gold’s appeal as a safe-haven asset may remain strong in the face of these uncertainties, providing additional support to its price.
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