Gold reached a new peak before relinquishing its gains as investors reassess the Federal Reserve’s approach to interest rate adjustments in light of robust US factory data.
The precious metal surged to $2,265.73 an ounce earlier on Monday, marking a 1.6% increase from Thursday’s closing price.
However, the Fed’s favored measure of underlying inflation, the core personal consumption expenditures index, exhibited a slowdown in February, a revelation made on Friday when many markets were shuttered.
Nonetheless, gold swiftly retreated from its highs after US manufacturing data sparked deliberation over whether the Fed might opt for two rate cuts this year instead of the previously anticipated three.
Derivatives markets are currently pricing in a probability of nearly 57% for a Fed rate reduction in June and a 70% likelihood for September.
The prospect of monetary easing by major central banks, heightened geopolitical tensions in regions like the Middle East and Ukraine, and robust purchases by central banks—particularly in China—amid ongoing economic challenges in Asia’s largest economy have all contributed to the rally.
Following the release of the inflation data, Federal Reserve Chair Jerome Powell indicated that the figures were “largely in line with our expectations,” signaling no urgency for rate cuts.
Later this week, investors will have the opportunity to further assess the US economic outlook and central bank policy with the release of the monthly employment report, which is expected to show an increase of at least 200,000 jobs for the fourth consecutive month.
“Inflation data, along with Powell’s comments, have added further support to gold, with the market increasingly convinced of a Fed rate cut beginning in June,” remarked Warren Patterson, head of commodities strategy at ING Groep NV.
However, he cautioned that “a pullback in the short term wouldn’t require much of a catalyst,” highlighting the potential impact of a stronger-than-expected US jobs report.
