Gold rebounds after US data boosts optimism, but inflation reports could challenge the rally
Gold prices fluctuated after seeing their largest one-day surge in three weeks, with new US data easing concerns about a potential hard landing for the world’s largest economy and helping to support a broader market rally, according to BNN Bloomberg.
On Thursday, bullion for immediate delivery rose by 1.9 percent, recovering from nearly a 3 percent drop over a five-day losing streak. This rebound followed data from the US Labor Department, which reported the biggest decrease in unemployment benefit applications in almost a year.
This development has led to optimism that the Federal Reserve may begin easing monetary policy as early as next month while avoiding a recession.
Global markets experienced renewed volatility this week, driven by fears of a US recession and tighter monetary policy from the Bank of Japan, which triggered a selloff in equities and significant currency fluctuations.
Although gold often serves as a safe haven during market turmoil, it can also experience short-term weakness under such conditions.
Thursday’s gains brought gold prices close to the record highs reached last month, but by Friday, the price remained relatively stable.
Swap traders have now scaled back their expectations for rate cuts this year after initially predicting more aggressive reductions.
A large majority of economists surveyed by Bloomberg now anticipate only a quarter-point rate cut in September, a view that contrasts with the calls for a larger reduction from some major Wall Street banks.
Gold’s next challenge will come with the release of inflation data. Investors will closely watch the upcoming producer and consumer price index readings on Tuesday and Wednesday to see if inflation continues to decline, which would support the case for Fed rate cuts as soon as next month.
The price of gold has increased by approximately 18 percent this year, largely driven by expectations of rate cuts from the US central bank. Gold typically benefits from monetary easing since it does not yield interest.
Additional factors contributing to gold’s upward trend include increased purchases by central banks and Chinese consumers, as well as safe haven buying prompted by conflicts in the Middle East and Ukraine.
RBC Capital Markets analysts, including Helima Croft, noted in a report that the combination of heightened volatility, geopolitical risks, recession fears, and anticipated rate cuts has driven gold prices to their current levels.
They cautioned that such an environment could create a “perfect storm” for the precious metal.
However, a headwind for gold emerged when data showed that gold holdings in exchange-traded funds (ETFs) dropped by 0.7 percent on Thursday, marking the largest one-day decline since October.
As of 10:16 am in New York, spot gold was trading at $2,430.31 an ounce, on track for a 0.5 percent weekly decline. Meanwhile, the Bloomberg Dollar Spot Index fell by 0.2 percent, and silver, platinum, and palladium also experienced declines.
