July 11, 2024
New Delhi, India
Gold Prices(XAU/USD)
Gold prices have been gaining traction for the third consecutive day, drawing interest from investors as a softer US Dollar (USD) and expectations of Federal Reserve rate cuts provide support. This article explores the key factors influencing gold prices, including Fed policy expectations, central bank actions, and the upcoming US Consumer Price Index (CPI) report.
Fed Rate Cut Bets Boost Gold
Gold prices have climbed back above the $2,380 level in early European trading, driven by expectations that the Federal Reserve will begin its rate-cutting cycle in September. Fed Chair Jerome Powell’s recent comments have reinforced these expectations, indicating that the US central bank is on a path toward stable prices and may consider neutral rates later in 2024 if inflation continues to cool. This sentiment has kept the USD on the defensive, benefiting gold prices as investors seek non-yielding assets.
Central Bank Buying and Geopolitical Risks
Sustained central bank purchases of gold, alongside ongoing macroeconomic uncertainties and geopolitical risks, continue to lend support to gold prices. Despite the bullish backdrop, the risk-on sentiment prevalent in the market has capped significant upward movements for the safe-haven asset. Investors remain cautious as they await more concrete data to gauge the Fed’s next moves.
Market Awaits US CPI Report
The release of the US CPI report is highly anticipated, as it will provide more insights into the Fed’s rate-cut path and influence USD demand. The headline CPI is expected to have risen by 0.1% in June, with the yearly rate decelerating from 3.3% to 3.1%. The Core CPI, excluding food and energy prices, is forecasted to remain sticky at a 3.4% year-over-year rate. This crucial inflation data will set the stage for the Fed’s policy decisions and help determine the next directional move for gold prices.
Modest USD Weakness Underpins Gold
The firming acceptance that the Fed will cut rates in September and potentially again in December has continued to undermine the USD, providing a supportive backdrop for gold prices. However, Powell’s acknowledgment of a cooling US economy and commitment to a 2% inflation target has tempered bullish bets, as traders await more data before making significant moves.
Conclusion
Gold prices are navigating a complex landscape of economic signals and market expectations. While the softer USD and rate cut bets offer support, the risk-on mood and anticipation of the US CPI report keep the market cautious. Investors will closely monitor these developments to gauge the future direction of gold prices.
Disclaimer:
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