Gold (XAU) prices witnessed a remarkable surge on Monday, surpassing the $2,100 mark, driven by heightened expectations of an interest rate cut by the US Federal Reserve (Fed) in June.
The surge gained momentum on Friday after weak US manufacturing and consumer sentiment data increased the likelihood of a rate cut. This propelled a substantial rally in gold, with XAU/USD recording a 1.95% gain on Friday and extending the climb by another 1.5% on Monday, reaching a three-month high. Presently, the probability of a Fed rate cut in June stands at 66%, as per the CME FedWatch Tool.
Geopolitical uncertainties globally further fueled safe-haven flows, supporting precious metal prices. Ole Hansen, the Head of Commodity Strategy at Saxo Bank, noted that increased geopolitical tensions worldwide have diminished short-selling appetite, strengthening gold’s current attractiveness for buy-on-dips strategies.
Phillip Streible, Chief Market Strategist at Blue Line Futures, highlighted the significance of Federal Reserve Chair Jerome Powell’s speeches scheduled for the week. If Powell adopts a more dovish tone or if there’s a negative surprise in the US jobs data on Friday, it could provide additional support for gold.
Despite the ongoing rally, there are concerns about a potential overreaction to dovish interest rate expectations. Traders have seemingly factored in weak economic figures and may swiftly adjust if unexpectedly positive macroeconomic data emerges. The focus for traders today is on the Services Purchasing Managers’ Index (PMI) report by the Institute of Supply Management (ISM) at 3:00 p.m. UTC. A lower-than-expected figure could sustain the gold rally, albeit potentially at a more moderate pace. Conversely, if the data exceeds expectations, XAU/USD might experience a sharp correction, possibly dropping below the $2,100 threshold.
