In a market affected by the growing anticipation of rate cuts and signs of a softer US economy, gold prices experienced a slight decline in Asian trade on Tuesday. However, the precious metal still held onto some gains from the previous session, driven by the weakening US dollar, which reached a two-month low.
Despite remaining below the record highs witnessed in May, gold prices have been influenced by upcoming labor market data, expected to provide crucial insights into the trajectory of US interest rates.
During Asian trade, spot gold experienced a marginal 0.1% decline, settling at $2,347.66 per ounce, while gold futures expiring in August also retreated by 0.1% to reach $2,368.50 per ounce at 00:36 ET (04:36 GMT).
As purchasing managers index (PMI) data released on Monday indicated a second consecutive month of contraction in US manufacturing activity for May, market participants swiftly adjusted their expectations. This shift was evident in the CME Fedwatch tool, which highlighted an increased likelihood, now at 52.1%, of a 25 basis point rate cut in September, up from the previous day’s estimate of 47%.
The recent PMI figures, coupled with a softer gross domestic product reading, have bolstered beliefs that the US economy is cooling. This, in turn, has raised expectations of reduced inflationary pressures and provided the Federal Reserve with greater confidence in initiating interest rate cuts. The consequence of this sentiment was a decline in the value of the US dollar to a two-month low on Monday.
While the Federal Reserve is expected to maintain steady rates at its upcoming meeting next week, the labor market data slated for release this week will undoubtedly influence the central bank’s considerations regarding future rate adjustments.
In addition to the US, rate decisions by the European Central Bank and the Bank of Canada are also expected this week, with both central banks showing indications of initiating interest rate cuts. Lower interest rates are generally beneficial to gold and other precious metals as they reduce the opportunity cost of investing in these assets amidst a high-rate environment.
Meanwhile, other precious metals demonstrated stability on Tuesday following their gains in the previous session. Platinum futures experienced a marginal decline of 0.1%, settling at $1,023.50 per ounce, while silver futures remained steady at $30.785 per ounce.
In the realm of industrial metals, copper prices displayed mixed movements on Tuesday as they steadied after a recent decline from record highs observed over the past week. On the London Metal Exchange, benchmark copper futures rose by 0.5% to $10,197.50 per tonne, while one-month copper futures fell by 0.4% to $4.6645 per pound.
Growing concerns over sluggish manufacturing activity, highlighted by weak PMI data from the US and China, have raised questions about the potential impact on global demand for copper, which may lead to weaker demand for the red metal in the coming period.
