- Gold prices reached $2,520 per ounce on Wednesday, setting a new all-time closing high as more dovish expectations from major central banks lowered bond yields and favored demand for non-interest-bearing bullion assets.
- The US nonfarm payrolls were revised down by about 820,000 for the year ending in March 2024 after estimates from QCEW.
- As a result, the findings reinforced concerns about the US labor market being significantly impacted by high borrowing costs following the weaker-than-expected job numbers in July, strengthening the case for the Federal Reserve to deliver aggressive US interest rate cuts this year.
Meanwhile, the Swedish central bank cut its benchmark interest rate and signaled several more cuts this year, while the People’s Bank of China emerged from unexpected cuts that left interest rates at record lows amid slowing growth in China. Also, the European Central Bank and the Bank of England have cut interest rates and are set to make further cuts.
As for the factors affecting the gold market, the US Dollar Index (DXY) fell below 101 on Wednesday, reaching its lowest level since the beginning of the year. Also, this decline came after the release of the minutes of the Federal Reserve’s July meeting, which indicated that a rate cut in September has become more likely. Furthermore, the minutes indicated that most US Federal Reserve officials would support easing monetary policy if upcoming data meets expectations. In addition, the large revision to non-farm payrolls by 818,000 jobs last year increased concerns about the labor market. The dollar was also weakened by the strength of the euro, supported by higher-than-expected producer prices in Germany, as well as the British pound and the Japanese yen, which were boosted by positive economic data and expectations of future interest rate hikes.
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Another factor affecting the gold market, the yield on the US 10-year Treasury note fell to a 14-month low. According to electronic trading, the yield on the US 10-year Treasury note fell below 3.77% on Wednesday, the lowest level in more than a year, amid growing confidence that the Federal Reserve is set to deliver multiple interest rate cuts this year. Additionally, recent economic data has strengthened the case for the Fed to deliver aggressive US interest rate cuts this year. Bets on multiple rate cuts gained further momentum after minutes of the Fed’s last meeting showed that the Federal Open Market Committee (FOMC) agreed that a rate cut would be appropriate in September if data develops as expected. Investors have thus priced in 100 basis points of rate cuts by the central bank this year.
The Fed is moving towards a rate cut
The Fed had kept the federal funds rate at a 23-year high of 5.25%-5.50% for an eighth consecutive meeting in July 2024, in line with expectations. Policymakers indicated that there has been some further progress toward the 2% inflation target, although it remains somewhat elevated. Recent indicators also suggest that economic activity has continued to expand at a solid pace.
Job gains have slowed, and the unemployment rate has risen but remains low. Also, the central bank judges that risk to achieving its employment and inflation goals continue to move toward a better balance. However, the Fed does not expect it to be appropriate to cut rates until it has greater confidence that inflation is moving sustainably toward 2%. During its regular press conference, Fed Chairman Powell said that a September rate cut could be on the table if inflation falls in line with expectations and that he could imagine scenarios where the Fed could cut rates several times this year or not at all.
Gold Price Forecast and Analysis Today:
Our technical view on gold price performance has not changed, as the overall trend will remain bullish as long as global geopolitical tensions continue to rise, and global central banks continue to ease their policy stance and increase their gold purchases as a hedge. Moreover, the move above the resistance of $2500 per ounce moves all technical indicators towards strong overbought levels, the upward trend will remain in place as long as the mentioned factors of its gains are in place. Ultimately, there will be no profit-taking sales without the recovery of the US dollar price and the calming of global geopolitical tensions.
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