Gold Holds Firm on Slowing Inflation, Boosting Fed Rate-Cut Expectations

Tanushree Jaiswal

Last Updated: 1st July 2024 - 12:10 pm

Gold prices remained stable on Monday after data indicated a decline in U.S. inflation, raising expectations that the Federal Reserve might begin cutting interest rates this year. As of 04:27 GMT, spot gold was nearly unchanged at $2,324.44 per ounce. The prices had surged over 4% in the second quarter.

"The latest U.S. inflation data remain fresh on investors' mind, with the data coming in line with consensus and generally did little to sway current market rate expectations for the Fed's easing process to kickstart in September," said IG market strategist Yeap Jun Rong. But, "any failure to defend the $2,280 level ahead may potentially pave the way for gold prices to head towards the $2,200 next".

According to the CME FedWatch tool, traders are anticipating a 64% probability of the first rate cut occurring in September. Lower interest rates decrease the opportunity cost of holding non-yielding bullion.

The market's attention is now turning to comments from Fed Chair Jerome Powell on Tuesday, followed by the release of minutes from the Fed's latest policy meeting on Wednesday, and U.S. labor market data later in the week.

"Although central bank purchases have slowed down in recent months, we believe emerging market's central banks will continue to diversify their reserves into gold," ANZ said in a quarterly note. Spot silver dipped 0.2% to $29.06, platinum fell 0.7% to $986.08 and palladium held steady at $972.74.

A private sector survey revealed that China's manufacturing activity, a key metals consumer, grew at the fastest pace in over three years. This contrasts with an official PMI released on Sunday, which indicated a decline in manufacturing activity.

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