Gold prices soared to a record high on Monday, defying a surge in the dollar, as ongoing safe-haven demand overshadowed signs of U.S. economic strength that dampened early-rate cut hopes.
Spot gold surged 0.9% to reach $2,249.95 an ounce, while gold futures expiring in June climbed 0.8% to settle at $2,257.10. The intraday peak for futures hit $2,286.35 prior to the release of U.S. manufacturing data.
The remarkable ascent in gold’s value occurred despite an unexpected expansion in U.S. manufacturing activity, which tempered expectations of imminent rate cuts, consequently boosting Treasury yields and the dollar. This surge in the greenback typically renders gold more expensive and less appealing to foreign buyers, given its pricing in dollars.
The ISM manufacturing purchasing managers’ Index surprisingly rose to a reading of 50.3 from 47.8, indicating a growth in manufacturing for the first time since September 2022.
According to Investing.com’s Fed Rate Monitor Tool, the likelihood of a June rate cut diminished to 56%, down from 64% the previous week.
However, the optimistic economic data was counterbalanced by the core PCE price index, the Federal Reserve’s favored inflation metric, which exhibited a slower-than-anticipated growth in February. This slowdown hinted that recent spikes in inflation might have been deviations from the prevailing deflationary trend.
Morgan Stanley maintained its forecast of a first rate cut in June, citing expectations of a moderate core PCE averaging 0.22% from March to May. The lower readings are viewed as indicative of persistent disinflationary pressures towards the Fed’s target.
Moreover, the surge in gold’s safe-haven appeal was bolstered by escalating geopolitical tensions, notably triggered by reports from Iranian and Syrian media suggesting Israeli airstrikes near Iran’s embassy in Syria’s capital on Monday.
Overall, the confluence of safe-haven demand and geopolitical uncertainties, combined with nuanced interpretations of economic indicators, continues to propel gold to unprecedented highs, underscoring its enduring allure as a store of value in times of volatility and uncertainty.
