Gold prices (XAU/USD) surged as the week drew to a close, settling around $2,360 per troy ounce after experiencing robust gains. Throughout the week, XAU/USD had been relatively steady, fluctuating between $2,300 and $2,330. However, momentum shifted on Thursday as market sentiment turned bearish on the US Dollar (USD), fueled by renewed hopes of Federal Reserve (Fed) interest rate cuts.
Amid a lack of significant economic data, speculative interest was guided by central banks’ monetary policy decisions and US employment indicators.
The Reserve Bank of Australia (RBA) convened this week to deliberate on monetary policy and opted to maintain the Official Cash Rate (OCR) at 4.35%, aligning with market expectations. Notably, the RBA refrained from making substantial changes to its policy statement despite concerns about a potential hawkish pivot. RBA Governor Michele Bullock reiterated the readiness of policymakers to take action if inflation, particularly in the services sector, remains stubbornly high.
Similarly, the Bank of England (BoE) announced its decision to keep the benchmark interest rate unchanged at 5.25%. The accompanying Monetary Policy Report provided upward revisions to growth forecasts while predicting lower inflation levels. Projections indicated a GDP growth of 0.2% in Q2, rising to 0.9% within a year, and further increasing in subsequent years. Annual inflation rates are anticipated to reach 1.9% in two years and 1.6% in three years, below the BoE’s 2% target. Governor Andrew Bailey hinted at the possibility of more pronounced rate cuts than anticipated by the markets, leading to depreciation of local currencies against the USD.
However, market dynamics shifted on Thursday with the release of US Initial Jobless Claims for the week ending May 3. Amid a dearth of substantial economic indicators, investors interpreted signs of a softening labor market as Initial Jobless Claims rose to 231K, the highest level since November 2023.
Anticipating potential Fed rate cuts in response to weakening labor market conditions, market participants reduced their exposure to the USD, contributing to the upward movement in gold prices.
Looking ahead, attention will turn to US inflation data for April, including the Consumer Price Index (CPI) and Producer Price Index (PPI). Despite the Fed’s reliance on alternative inflation measures, these releases are expected to impact USD performance significantly. Additionally, China’s forthcoming data release next Friday, encompassing Retail Sales, Industrial Production, and the House Price Index for April, will be closely monitored for broader market implications.
