July 18, 2024
New Delhi, India
Gold prices
Gold prices are edging higher, approaching near-record highs, as increasing optimism surrounds the possibility of the Federal Reserve cutting interest rates in September. The price of gold (XAU/USD) is hovering around $2,470 per troy ounce, driven by expectations of a rate cut which enhances the appeal of non-yielding assets like gold.
Federal Reserve Signals:
Federal Reserve officials have shown growing confidence that inflation is aligning with their targets, hinting at potential rate cuts. Fed Governor Christopher Waller stated that the central bank is ‘getting closer’ to reducing interest rates. Additionally, Richmond Fed President Thomas Barkin noted the broadening ease in inflation, expressing a desire for this trend to continue.
Market Expectations:
According to the CME Group’s FedWatch Tool, there is now a 93.5% probability of a 25-basis point rate cut at the September Fed meeting, a significant increase from 69.7% a week earlier. This heightened expectation is fueling the rise in gold prices.
US Dollar and Treasury Yields:
The US Dollar Index (DXY), which measures the USD against six major currencies, is rebounding due to improved US Treasury yields. The DXY is trading around 103.80, with yields on 2-year and 10-year US Treasury bonds at 4.45% and 4.17%, respectively. These higher yields may limit the upside potential for gold prices.
Economic and Political Influences:
Former President Donald Trump recently expressed support for tax reductions, lower interest rates, and increased tariffs, which could potentially be inflationary and weaken the US Dollar, thereby boosting demand for dollar-denominated gold. However, Trump cautioned Fed Chair Jerome Powell against cutting rates before the presidential election in November.
Retail Sales Data:
US Retail Sales for June remained steady at $704.3 billion, aligning with market expectations. Fed Chair Jerome Powell mentioned that the inflation readings this year add confidence that inflation is on track to meet the Fed’s target, suggesting that a shift to rate cuts may be imminent.
Botom Line:
As gold prices approach record highs, the market is closely watching the Federal Reserve’s next moves. The rising likelihood of interest rate cuts in September is bolstering gold’s appeal, although higher US Treasury yields and economic data will continue to influence its trajectory.
Currency Market Update July 18, 2024
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