Gold prices soared over 1% on Thursday during the North American trading session, driven by rising U.S. Treasury bond yields that bolstered the U.S. Dollar. The precious metal, with XAU/USD trading at $2,356, was buoyed by softer-than-expected U.S. economic data, which strengthened market expectations of at least two policy rate cuts by the Federal Reserve in 2024.
The recent U.S. economic indicators pointed towards a slowing economy, encouraging investors to anticipate two 25-basis-point interest rate reductions. The latest U.S. jobs report fell short of expectations, revealing an uptick in unemployment benefit claims, surpassing previous estimates.
In addition, disappointing housing data showed a decline in Building Permits and Housing Starts, further supporting the notion of an economic slowdown.
Minneapolis Federal Reserve President Neel Kashkari commented on the inflation outlook, suggesting it might take one to two years to reduce core inflation to the 2% target. He emphasized that the path of interest rates would be contingent on economic conditions, noting, “We are achieving disinflation despite remarkable economic growth.”
Geopolitical developments also contributed to the upward trend in gold prices. Heightening tensions in the Middle East, with Israel threatening an attack on Hezbollah in Lebanon, alongside a recent agreement between Russia and North Korea, have increased the appeal of gold as a safe-haven asset. The metal is currently trading near a critical resistance level.
According to the CME FedWatch Tool, the probability of a 25-basis-point rate cut in September stands at 58%, down from 62% the previous day. Meanwhile, the December 2024 fed funds futures contract suggests a 36-basis-point rate cut by the end of the year.
This combination of soft economic data and escalating geopolitical risks is creating a favorable environment for gold, as investors seek stability amid uncertainty.
