The price of gold has been steadily rising, showing an upward trajectory and reaching around $2,020 per troy ounce during the early European session on Monday. This surge is largely due to cautious investor sentiment amid speculation about the Federal Reserve’s interest rate policy.
The US Dollar’s depreciation contributed to the increase in gold price, which was driven by the remarks of San Francisco Federal Reserve (Fed) President Mary C. Daly at the Annual National Association for Business Economics Economic Policy Conference. Daly suggested that three rate cuts are a reasonable baseline for 2024, emphasizing that it’s premature to allow the economy to run without intervention. Additionally, former Fed official James Bullard’s suggestion that the Fed should consider lowering interest rates at the March meeting has also impacted market sentiment.
Despite these factors, the market sentiment does not indicate any rate adjustments in the upcoming Federal Reserve meetings in March and May. The CME FedWatch Tool suggests a 52% probability of a 25 basis points (bps) rate cut in June. The US Dollar failed to sustain its gains on Friday, despite better-than-expected Producer Price Index (PPI) data from the United States, leading to an increase in gold price.
The US Producer Price Index (PPI) showed a year-over-year growth of 0.9%, surpassing expectations and the previous figure. Additionally, there was a monthly improvement of 0.3%, contrasting with the previous decline. However, the preliminary Michigan Consumer Sentiment Index rose, falling short of the anticipated reading.
Additional insight: The fluctuation in gold prices can be attributed to a variety of economic factors, including currency movements, inflation concerns, and broader market sentiment. Investors often turn to gold as a safe-haven asset during times of uncertainty, which can drive up its price. The prospect of potential rate cuts from the Federal Reserve, combined with economic data releases, adds to the volatility of the gold market. Traders and investors will continue to closely monitor Fed comments and economic indicators for further guidance on gold price movements.
