Gold prices maintained their position at three-week peaks on Wednesday, benefitting from a weakened dollar following softer-than-anticipated U.S. economic data. The market sentiment was driven by growing expectations that the Federal Reserve might encounter limitations in its ability to pursue further rate hikes.
In the past week, the precious metal exhibited a robust upward trend, bolstered by increased safe-haven demand. This demand surge was a response to escalating uncertainty surrounding the U.S. economic outlook.
However, the potential for additional advancements in gold prices was overshadowed by the likelihood of prolonged higher U.S. interest rates. Market participants are anticipating various economic reports this week that will influence the trajectory of interest rates.
At 00:33 ET (04:33 GMT), spot gold experienced a marginal decline of 0.1%, settling at $1,936.45 per ounce. Simultaneously, gold futures for December delivery also dipped 0.1%, settling at $1,963.85 per ounce. Both these indicators exhibited an impressive surge of nearly 1% each on Tuesday, marking their highest values since early August.
U.S. Economic Data Onslaught and Dollar Resilience The dollar exhibited stability after recent losses, as did Treasury yields, following a substantial decline in the previous session that followed weaker-than-projected job openings and consumer confidence data.
Market attention has now shifted to pivotal economic indicators, with a revised assessment of second-quarter economic growth scheduled for later on Wednesday. On Thursday, data concerning personal consumption expenditures, the preferred inflation measure of the Fed, is anticipated. Furthermore, August nonfarm payrolls data is expected to be unveiled on Friday.
Should signs emerge indicating a slowdown in U.S. inflation and labor market activity, the Federal Reserve might find itself with diminished incentives to pursue further interest rate hikes. Nevertheless, the central bank’s indications that U.S. interest rates will remain elevated for a prolonged period means that gold’s relief could be limited until the point at which the central bank opts to commence rate reduction in the coming year.
Impact of Higher Interest Rates on Gold The escalation in interest rates amplifies the opportunity cost of investing in non-yielding assets, a trend that had adversely affected the appeal of gold throughout the past year.
