June 11, 2024
New Delhi, India
Gold Under Pressure
Gold prices have taken a hit recently, moving lower due to diminishing hopes of an interest rate cut by the Federal Reserve (Fed). Investors are adjusting their expectations following strong US economic data, particularly the upbeat jobs report. This has reduced the likelihood of a rate cut in September, affecting gold negatively.
US Dollar Strength and Treasury Yields
A robust US Dollar is another factor weighing down gold prices. The strength of the USD is supported by high US Treasury bond yields. The 10-year and 2-year US government bonds are maintaining yields above 4.45% and close to 5.0%, respectively. These high yields are keeping the USD strong and making gold less attractive since gold does not offer any yield.
Geopolitical and Economic Factors
Political uncertainty in Europe, especially with French President Emmanuel Macron calling for snap elections, adds a layer of complexity. This political unrest might provide some support for gold as investors look for safe-haven assets. Additionally, geopolitical risks globally are also likely to limit further declines in gold prices.
Central Bank Influence
The People’s Bank of China (PBoC) has significantly reduced its gold purchasing activities in May, ending a long buying spree. This reduction has contributed to the downward pressure on gold prices.
Upcoming US Economic Data
Traders are also cautious ahead of key US economic data releases. The upcoming US consumer inflation figures and the Federal Open Market Committee (FOMC) decision are crucial. These events will provide insights into future Fed policies and rate cuts, determining the near-term direction for gold prices.
Market Sentiment Post Nonfarm Payrolls
The recent strong US Nonfarm Payrolls report has reinforced the belief that the Fed may keep interest rates higher for longer. This sentiment is acting as a headwind for gold. The probability of a September rate cut has decreased significantly, with markets now expecting only one rate cut of 25 basis points later in the year, either in November or December.
Conclusion
Gold prices are currently under pressure due to a combination of strong US economic data, high US Treasury yields, and a robust US Dollar. While political uncertainties and geopolitical risks may provide some support, traders are keenly awaiting upcoming US economic data to gauge the future trajectory of gold prices.
Disclaimer:
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