Gold prices surged to nearly $2,170 per troy ounce, reclaiming losses from the previous two sessions, driven by a weaker US Dollar (USD) and dovish sentiments surrounding the Federal Reserve’s stance on interest rates. The uptick in gold prices comes amidst market expectations of interest rate cuts by the Fed, starting as early as June, which has softened the Greenback and enhanced the appeal of bullion.
Federal Reserve Chair Jerome Powell, speaking at a press conference, hinted that an unexpected increase in unemployment could prompt the central bank to consider lowering interest rates. Powell reassured markets that the Fed would adopt a cautious approach to consecutive months of elevated inflation figures. Additionally, recent statements from Fed policymakers suggest a consensus on reducing interest rates by three-quarters of a percentage point by the end of 2024, despite recent spikes in inflation.
However, the decline in US yields signals a shift in investor sentiment towards US Treasury bonds, potentially posing a challenge for non-yielding assets like gold. The 2-year and 10-year yields on US Treasury bonds remain stable at 4.60% and 4.21%, respectively, prompting investors to consider the relative safety and stability of bonds over gold.
The upcoming US inflation readings, including Gross Domestic Product (GDP) data for the fourth quarter of 2023 and the Personal Consumption Expenditures (PCE) price index report, are expected to significantly impact gold prices. Gold traders will closely monitor these indicators for insights into inflationary pressures, which could influence the direction of gold prices in the near term.
