On Thursday, Gold (XAU/USD) demonstrated a modest uptick of approximately 0.2%, hovering in the $2,360 range, following the European Central Bank’s (ECB) decision to slash interest rates by 0.25% during its June policy meeting. The move towards lower interest rates is viewed favorably for Gold, as it effectively diminishes the opportunity cost associated with holding the non-yielding asset.
Additionally bolstering Gold’s position is the sustained belief among investors that the Federal Reserve (Fed) will initiate interest rate cuts as early as September, notwithstanding the recent release of higher-than-anticipated US Institute for Supply Management’s (ISM) Services PMI data on Wednesday.
Gold’s ascent correlates with market sentiments forecasting lower interest rates. Traders are actively positioning themselves in anticipation of a Fed rate reduction, with the CME FedWatch tool indicating a 69% probability of rates being lower than the current level come September. This outlook is conducive to Gold, as it mitigates the opportunity cost of holding the asset, which does not generate yields.
The global landscape reflects a trend towards decreasing interest rate expectations. Notably, the Bank of Canada (BoC) reduced its overnight rate from 5.00% to 4.75% on Wednesday, followed by the ECB’s decision to trim its main refinancing rate by 0.25% to 4.25% on Thursday. Speculation is also mounting for the Swiss National Bank (SNB) to lower its key rate amidst lower inflation data in Switzerland, with an upcoming decision slated for June 20.
