Gold prices, represented by XAU/USD, experienced a minor decline from record fresh all-time highs near $2,350 during Monday’s early New York session. Despite this slight pullback, the near-term appeal of gold remains robust, fueled by heavy purchasing activity by global central bankers. The ongoing rally in the precious metal persists even as US Treasury yields saw an increase following the release of a robust United States Nonfarm Payrolls report for March, which shifted expectations regarding the Federal Reserve (Fed) potentially pivoting to rate cuts in the second half of the year.
The 10-year US Treasury yields surged to four-month highs near 4.45%, a development that typically dampens gold’s appeal due to increased opportunity costs associated with holding investments in the yellow metal. However, contrary to conventional wisdom, this trend has not deterred gold’s upward trajectory in recent weeks.
Fed policymakers are hesitant to consider rate cuts, viewing them as inappropriate given the strength of the labor market data, which could impede progress towards reducing inflation to the 2% target. Notably, one Fed policymaker believes that rate cuts may not be necessary this year if price pressures persist. Minneapolis Fed Bank President Neel Kashkari, while not currently a voting member, expressed skepticism about the need for rate cuts, stating that the Fed should maintain interest rates within the range of 5.25% to 5.50% if inflation remains elevated. Kashkari cautioned that further rate increases could be considered if necessary, although they are not currently a likely scenario based on available information, as reported by Reuters.
