Global gold prices rose significantly in trading on Wednesday, as investors eagerly await US inflation data for clues on the possibility of a Federal Reserve rate cut next week.
According to Matt Simpson, senior analyst at City Index, gold has been indicated to be trapped in a limited trading range in the market, ahead of the release of the main US inflation report. The data is expected to show weak inflation, which could lead to a rise in gold prices to record levels. The US CPI data is scheduled to be released at 15:30 Riyadh time, while the PPI reading and initial jobless claims will be published on Thursday.
Expectations indicate that the CPI report may show inflation approaching the Fed’s 2% target, which supports Fed Chairman Jerome Powell’s view on controlling price growth. This data is expected to play a crucial role in determining the size of the interest rate cut at the next meeting.
Several economists, according to a Reuters poll, said the Federal Reserve could cut interest rates by 25 basis points at each of the three remaining policy meetings in 2024.
Zero-yielding bullion is a popular investment option, especially amid low interest rates and geopolitical turmoil. “Gold is expected to see good support at $2,450-2,460 levels,” said Peter Fung, head of trading at Wing Fung Precious Metals. “Gold is also expected to trade around $2,600 by the end of the year, supported by lower US interest rates and continued geopolitical tensions.”
Rate Cut at Fed Policy Meeting
The US Rate Watch tool showed that there is a consensus among investors for a rate cut at the Fed policy meeting next week, with 67% expecting a 25 basis point cut, while 33% expect a 50 basis point cut in borrowing costs. In this context, Daniel Ghali, commodity strategist at TD Securities, confirmed that gold prices are trading in a very narrow range, awaiting the next catalyst, which is likely to be the US presidential debate tonight, followed shortly by inflation data.
Gold prices witnessed a noticeable rise during trading on Tuesday, after the US benchmark Treasury yields fell to their lowest levels since June 2023, amid growing expectations that the Federal Reserve will cut interest rates this month. At the settlement of trading, gold futures for December delivery rose by 0.4%, equivalent to $10.4, to reach $2,543.1 per ounce. The yellow metal continued to achieve gains for the second session in a row.
Currently, gold futures show a rise of 0.42%, reaching $2,553 per ounce. While spot gold contracts rose by 0.32%, recording $2,524 per ounce. On the other hand, the dollar index fell by 0.26% to 101.33 points. As for other metals, silver rose in spot transactions by 0.1% to $28.40 per ounce. Platinum also increased by 0.6% to $943.10, and palladium rose by 0.9% to $973.78.
ETF flows turned positive in May: Global gold exchange-traded funds saw positive flows in May for the first time in a year, with European and Asian markets leading the inflows, while US markets saw outflows.
Gold forecast for Q3 2024
The second half of 2024 started with gold prices up by about $100 compared to their opening level in the second quarter of the same year. Gold hit an all-time high in mid-May and then in August. In this context, expected cuts in global interest rates, especially in the United States, did not materialize, as inflation rates remained high contrary to expectations set by central banks.
Gold prices were positively affected by central bank purchases, especially from China, which helped shift the supply and demand balance towards higher prices. However, gold may come under downward pressure if demand weakens.
Moreover, the political risk premium that supported gold has declined, but this premium could return as the important presidential elections approach. Gold traders will face several factors that should be carefully monitored during the third quarter and second half of this year. As for the delay in US interest rate cuts, optimism about postponement of interest rate cuts has boosted gold expectations this year. Gold, which does not bear interest, usually benefits from lower borrowing costs. At the start of 2024, financial markets were expecting four to five rate cuts, each by 25 basis points, by the Fed. However, these expectations have been revised significantly over the past few months. Current expectations suggest only one or two cuts are likely, in line with the latest FOMC projections for the end of the year.
Weak economic data released at the start of the third quarter have boosted the likelihood that the Fed will turn to monetary easing as soon as September. Data from the US Bureau of Labor Statistics showed employment and wage growth slowed in US in June, while the unemployment rate rose. Swap traders are now pricing in a 75% chance of a rate cut in the next two months.
