Gold prices continued their upward trend, reaching $2,020 per troy ounce in the early European session on Monday. The surge in the precious metal is attributed to cautious investor sentiment, driven by speculation surrounding the Federal Reserve’s interest rate policy.
The rally in Gold was triggered by the depreciation of the US Dollar, following remarks by San Francisco Federal Reserve (Fed) President Mary C. Daly during the Annual National Association for Business Economics Economic Policy Conference. Daly suggested that three rate cuts would be a reasonable baseline for 2024, emphasizing that it’s premature to consider allowing the economy to run without intervention. Former Fed official James Bullard’s proposal to lower interest rates at the upcoming March meeting to prevent hindering economic activity due to higher rates has also influenced market sentiment.
Despite these developments, market sentiment currently suggests no rate adjustments in the Federal Reserve meetings scheduled for March and May. According to the CME FedWatch Tool, there is approximately a 52% probability of a 25 basis points (bps) rate cut in June. On Friday, the US Dollar (USD) failed to sustain its gains, initially fueled by better-than-expected Producer Price Index (PPI) data from the United States, resulting in a subsequent increase in Gold prices.
The US Producer Price Index (PPI) reported a year-over-year growth of 0.9%, surpassing expectations of 0.6% and exceeding the previous figure of 1.0%. Additionally, there was a monthly improvement of 0.3%, in contrast to the previous decline of 0.1%. However, the preliminary Michigan Consumer Sentiment Index rose to 79.6 from the previous 79.0, falling slightly short of the anticipated reading of 80.0.
