During the early Asian session on Monday, the price of gold (XAU/USD) surged to nearly $2,250 per troy ounce, reaching near all-time highs. The yellow metal attracted buyers amidst several factors, including expectations of a potential pivot from the Federal Reserve (Fed) in the second half of 2024, ongoing geopolitical tensions in the Middle East, and hopes for China’s economic recovery.
The anticipation of easing monetary policy from major central banks has also contributed to the upward momentum in gold prices. Financial markets have priced in a 68.5% likelihood of a quarter-point rate cut from the US Fed by June, according to the CME Fedwatch Tool. Fed Chairman Jerome Powell stated on Friday that recent US inflation data aligned with the Fed’s expectations, keeping the baseline for interest rate cuts intact. Lower interest rates tend to bolster gold prices as it becomes a more attractive investment option compared to interest-bearing assets.
On the economic front, the US Personal Consumption Expenditures Price Index (PCE) for February rose 2.5% year-on-year, meeting expectations. The monthly figure increased by 0.4% month-on-month, slightly below market consensus. Additionally, the Core PCE, which excludes volatile food and energy prices, climbed 2.8% year-on-year and 0.3% month-on-month, aligning with market expectations.
Geopolitical tensions in the Middle East have also influenced gold prices, with Hezbollah claiming responsibility for seven attacks on Israeli troops and targeting newly developed spy equipment near the Lebanese border. These escalating tensions have driven safe-haven flows and provided support to gold prices.
Furthermore, upbeat Chinese Purchasing Managers Index (PMI) data for March has lent additional support to gold prices. The National Bureau of Statistics (NBS) reported that Chinese Manufacturing PMI improved to 50.8 in March from 49.1 in the previous month, while Non-Manufacturing PMI climbed to 53.0 from 51.4 in February.
Looking ahead, traders will closely monitor China’s Caixin Manufacturing PMI for March, scheduled for release on Monday, as well as the US ISM Manufacturing PMI. A stronger-than-expected outcome in the US PMI report could potentially boost the US Dollar (USD) and limit the upside for gold prices in the near term.
