During the Asian session on Friday, the price of gold (XAU/USD) flirted with record highs around $2,230, bolstered by safe-haven flows amidst growing economic concerns and the possibility of interest rate cuts from the US Federal Reserve (Fed). However, expectations of easing on Fed rate cuts could potentially boost the US Dollar (USD) and limit the upside of gold priced in USD.
Investor sentiment towards gold gained momentum as they anticipated three rate cuts from the US Federal Reserve (Fed) throughout the year. Despite the Fed maintaining its benchmark overnight borrowing rate in a range between 5.25% and 5.50% for the fifth consecutive time last week, the central bank still anticipates three quarter-percentage point cuts by year-end. The CME FedWatch Tool indicates that traders are currently pricing in nearly a 63% probability of a Fed interest rate cut in June. Lower interest rates typically weaken the USD, thereby making gold more affordable for investors holding other currencies.
Additionally, ongoing geopolitical risks in the Middle East could further boost demand for traditional safe-haven assets like gold. Reports from the Palestinian Red Crescent revealed that Israeli forces besieged two additional Gaza hospitals on Sunday, trapping medical teams amidst heavy gunfire.
Conversely, a combination of hawkish comments from Fed officials and robust US economic data may exert downward pressure on the price of gold. Many Fed officials remain cautious about implementing easing measures prematurely. Fed Governor Christopher Waller emphasized on Wednesday that there was “no rush” to adjust rates, while Fed bank President Raphael Bostic revised down his previous estimate of two quarter-point rate cuts to just one for the year.
With most markets closed for Good Friday, the focus shifts to the release of the US February Personal Consumption Expenditures Price Index (PCE) data on Friday. The Core PCE, which is the Fed’s preferred inflation gauge, is anticipated to show a 0.3% increase in February, potentially impacting market sentiment and influencing gold prices.
