Fed Rate Cut Hopes, Geopolitical Tensions Lift Gold Prices


by Sandip Das on 6 May 2024,  3 min read


Gold prices strengthened on Monday, buoyed by several factors including anticipation of interest rate cuts by the Federal Reserve later in the year and escalating tensions in the Middle East. The appeal of gold, which does not yield interest like other assets, tends to rise during periods of uncertainty and geopolitical instability.

At 02:44 GMT, spot gold saw a 0.4 percent increase, reaching USD 2,310.89 per ounce, while US gold futures climbed 0.6 percent to USD 2,322.30 per ounce.

The ongoing conflict in the Middle East, particularly in Gaza, contributed to the bullish sentiment surrounding gold. On Sunday, prospects for a ceasefire in Gaza appeared bleak as Hamas reiterated its demand for an end to the conflict in exchange for the release of hostages. Israeli Prime Minister Benjamin Netanyahu rejected this demand outright, further dimming hopes for an immediate resolution. Yeap Jun Rong, a market strategist at IG, highlighted that gold prices are likely to remain sensitive to geopolitical developments, with any breakdown in ceasefire negotiations potentially driving prices higher.

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Additionally, weaker-than-expected US economic data supported the case for potential rate cuts by the Federal Reserve. Data released on Friday showed a slowdown in US job growth in April, reinforcing expectations that the Fed may implement rate cuts later in the year. The Institute for Supply Management (ISM) reported a decline in its non-manufacturing Purchasing Managers’ Index (PMI) from 51.4 in March to 49.4 in April. These indicators suggest a softening in the US economy, prompting speculation about the Fed’s monetary policy stance.

Market sentiment indicates a 67 percent probability of a US rate cut in September, according to CME’s FedWatch Tool. Lower interest rates diminish the opportunity cost of holding gold, making it more attractive to investors seeking safe-haven assets.

Federal Reserve officials have also weighed in on the inflation target and monetary policy outlook. Fed Bank President John Williams emphasised the importance of achieving the 2 percent inflation target for price stability. Austan Goolsbee, president of the Chicago Fed, highlighted the need for additional context in interpreting the US rate-path “dot plot,” which outlines policymakers’ projections for future interest rate changes.

In the precious metals market, spot silver rose 1.4 percent to USD 26.91 per ounce. Meanwhile, platinum recorded a nearly 0.7 percent decrease to USD 948.78, and palladium dipped slightly by 0.2 percent to USD 944.05 per ounce.

Turning to India, gold prices experienced a marginal decline on Monday. The cost of 24-carat gold decreased to Rs 7,254.4 per gram, down by Rs 640, while the price of 22-carat gold dropped to Rs 6,645.0 per gram, a decrease of Rs 587, according to a Mint report.

Overall, gold prices remained firm on Monday, driven by geopolitical tensions, expectations of Federal Reserve rate cuts, and subdued US economic data, signaling continued investor interest in the precious metal as a safe-haven asset.

Source: moneycontrol

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Disclaimer: The information provided in this blog post is for informational purposes only and should not be construed as investment or trading advice. The author is not a financial advisor and does not have any professional qualifications in this area. The author does not guarantee the accuracy or completeness of the information provided. Any action you take based on the information in this blog post is done at your own risk. Please consult with a financial advisor before making any investment.

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