Gold prices rebounded in early European trading on Monday, bounced off a corrective retreat from Friday’s two-week high.
Despite the Fed’s surprising hawkish stance, which predicted only one rate cut in 2024, market sentiment still suggests that interest rates could be cut twice this year due to easing inflationary pressures.
These expectations have put downward pressure on US Treasury yields, which, along with a weakening risk tone, geopolitical tensions, and political uncertainty in Europe, have supported gold as a safe-haven asset.
The impact of economic data on gold and the US dollar
Stronger-than-expected US purchasing managers’ index (PMI) data released on Friday pointed to the economy’s resilience, boosting the US dollar to its highest level since May 9. This strength in the dollar limited gold’s additional gains.
In addition, traders seem cautious, preferring to wait for important US macroeconomic releases this week, including the final reading of first-quarter GDP and the Personal Consumption Expenditure (PCE) price index.
The US composite PMI rose slightly from 54.5 in May to 54.6 in June, the highest level since April 2022, indicating a strong economic performance in the second quarter.
Despite this, prices paid for inputs fell to 56.6 from 57.2, while prices of products fell to 53.5, one of the slowest increases in the past four years. These data points, combined with disappointing falling consumer and producer prices and retail sales, maintain the potential for two rate cuts this year. Another factor weighing on the gold market is that US Treasury yields have mostly risen, with the yield on ten-year bonds rising to over 4.26%. The yield on two-year bonds was 4.74%, while the yield on bonds exceeded For 30 years 4.4%.
Gold prices rise supported by lower bond yields and inflation expectations
Gold prices rose slightly, today, Monday, supported by a decline in US Treasury bond yields, which increases the attractiveness of the non-yielding yellow metal. The focus is on the upcoming US economic data, especially the personal consumption expenditures (PCE) price index scheduled for release on Friday, which may influence decisions. Federal Reserve Board on interest rates.
Bank of America expects the price of gold to reach $3,000 per ounce in the next 12 to 18 months.
The outlook is based on continued buying of gold bullion among central banks around the world and interest rate cuts by the US Federal Reserve, which could lead to inflows into physically backed gold exchange-traded funds (ETFs).
In a note to clients, Bank of America wrote: “Continued central bank purchases are also important, and pressure to reduce the share of the US dollar in foreign exchange portfolios will likely lead to increased central bank gold purchases.” He says gold is still viewed as a long-term store of value, a hedge against inflation, and an effective portfolio diversifier.
These attributes make it an ideal investment in the current environment of high inflation and geopolitical uncertainty, says Bank of America. The bank also points to a recent World Gold Council survey that found that central banks plan to buy more gold in the coming months.
Bank of America indicated that the purchase of gold may accelerate in the second half of this year amid interest rate cuts and with increasing volatility in the US Treasury markets. The price of gold has risen approximately 15% this year and is currently trading at US$2,338 per ounce.
Gold Rises, Silver Stabilizes Amid Mixed Economic Data
Gold prices fell last Friday from their resistance level of $ 2369 an ounce for losses that extended to the support level of $ 2316 an ounce before settling around $ 2321 an ounce at the beginning of trading this week. Overall, gold achieved its second consecutive weekly gain of about 0.8%, up about 13% year-to-date. In the same performance, prices of silver, gold’s sister commodity, collapsed to $29.65 an ounce. Overall, the white metal will still enjoy a weekly gain of 2%. , in addition to its year-to-date increase of more than 23%. Overall, leading metals markets this week benefited from weak economic data.
According to economic calendar data, US retail sales rose at a slower-than-expected pace of 0.1% in May, while April’s figures were revised downwards. Industrial and manufacturing production data came in better than expected, although April’s figures were revised downwards. Initial jobless claims were higher than agreed estimates, while various regional central bank indices remained stuck in contraction territory. However, the June quick readings of the Manufacturing and Composite PMI surveys released by S&P Global has exceeded estimates.
Meanwhile, the Conference Board’s main economic index fell 0.5%, worse than economists’ expectations of -0.3%.
This new week, the final reading of US GDP for the first quarter will be released, and it is still expected to show a reading of 1.3%. Overall, with inflationary pressures receding and the U.S. economy slowing, the Fed is well positioned to cut U.S. interest rates. But monetary policymakers insist they still need to wait for more evidence to be confident that inflation is coming back to the central bank’s 2% target.
