Gold prices (XAU/USD) surged on Monday, benefiting from a weaker US Dollar, and reaching $2,332, up 0.49%. The rally comes as investors brace for the release of the Federal Reserve’s preferred inflation gauge, the Personal Consumption Expenditures (PCE) Price Index, on Friday. Concurrently, the US Dollar Index (DXY), which measures the Greenback against a basket of six major currencies, fell 0.26% to 105.53.
Investor risk appetite has deteriorated, prompting a flight to the safety of gold. US Treasury bond yields remained flat, with the 10-year Treasury note standing unchanged at 4.253%.
The upcoming PCE data is crucial as it could affirm the disinflation process anticipated by Fed policymakers, potentially increasing the likelihood of an interest rate cut as early as September. Currently, the CME FedWatch Tool indicates a 66% chance of easing in September, up from 59.5%.
Adding to the dovish sentiment, San Francisco Fed President Mary Daly noted that the labor market is nearing an inflection point, suggesting that further weakening could lead to higher unemployment. Daly emphasized that inflation is not the only risk, signaling a more cautious approach to rate hikes.
Moreover, the December 2024 federal funds rate futures contract implies that the Fed may ease policy by just 36 basis points towards the end of the year, reflecting moderated expectations for rate cuts.
In summary, gold has gained on the back of a weaker US Dollar and growing anticipation of key inflation data, with investors closely monitoring the Fed’s potential policy shifts in response to evolving economic indicators.
