Gold (XAU/USD) continues its upward momentum for a second day, trading in the $2,410s as concerns over “stagflation” escalate. This economic term, blending “stagnant” and “inflation,” refers to a scenario of rising inflation coupled with weak economic growth and employment figures. The apprehension around stagflation has intensified following the Philadelphia non-manufacturing Business Outlook Survey, which revealed both a disappointing headline number and a concerning increase in prices paid. Additionally, US Existing Home Sales saw a 5.4% decline month-over-month in June, reinforcing evidence of economic deceleration, as noted by analysts at Rabobank.
The rise in gold prices is also attributed to speculations that the Federal Reserve might cut interest rates. Such a move would enhance the appeal of non-yielding assets like gold. The interplay of economic indicators and Federal Reserve policies will be pivotal in determining gold’s price direction in the near future.
Market participants are now closely watching upcoming US economic data releases to gauge the future path of interest rates. Key reports include the US Q2 Gross Domestic Product (GDP) growth data, due Thursday, and the Personal Consumption Expenditures (PCE) Price Index for June, set for Friday.
The advance estimate for Q2 GDP growth is anticipated to show a 1.9% increase, up from 1.4% in Q1, while the PCE price index is expected to rise by 0.1% after remaining unchanged in May. Although recent declines in US headline consumer inflation have fueled hopes for Federal Reserve rate cuts in September, the likelihood of additional reductions later in the year remains uncertain. Stronger-than-expected data could prompt the Fed to delay further rate cuts, potentially exerting downward pressure on gold prices.
Furthermore, gold’s value has been influenced by US Vice President Kamala Harris securing sufficient delegate support for the Democratic nomination. This development has led to the unwinding of the “Trump trade” and pushed US bond yields lower, both of which are favorable for gold. Polls indicating Harris’s lead over Trump suggest a potentially less inflationary economic outlook if she wins the presidency.
