20 May 2024 | FXGT.com
Gold Surges to Record Highs Amid Fed Rate Cut Hopes and Escalating Geopolitical Tensions
- New Record Highs: Gold prices surged on Monday, hitting a record high near $2,450 during the European session. The rise was driven by renewed hopes for interest rate cuts from the US Federal Reserve and escalating geopolitical tensions in the Middle East.
- Impact of U.S. Data: Signs of slowing US consumer inflation and stalling retail sales data last week have given the Federal Reserve more flexibility to initiate monetary easing. U.S. consumer prices increased less than expected in April, suggesting that inflation resumed its downward trend, which supported expectations for a September interest rate cut.
- Market Expectations: Despite policymakers not officially changing their stance, markets are already anticipating the first-rate reductions this year. Financial markets have priced in a 9% chance of a rate cut in June and nearly 66% in September, per the CME FedWatch tool. This optimism has supported the upward trajectory for gold prices.
- China’s Gold Purchases: The People’s Bank of China added 60,000 troy ounces of gold to its reserves in April, marking the 18th consecutive month of gold purchases. This consistent increase in gold reserves highlights China’s strategic move to diversify its assets amid global economic uncertainties.
- Geopolitical Tensions: The alleged death of Iran’s President Ebrahim Raisi in a helicopter crash has heightened geopolitical tensions, boosting safe-haven demand for gold. Increased tensions between Russia and Ukraine have further add to the uncertainty, driving investors towards gold.
- Fed Speeches: Traders are cautious ahead of speeches from US Federal Reserve policymakers later today, which could influence future interest rate expectations. Speeches from Federal Reserve officials Bostic, Barr, Waller and Jefferson, are expected to provide insights into the future path of monetary policy. A cautious or hawkish stance from these officials could limit gold’s upside potential.
- Upcoming Fed Minutes: The release of the Fed meeting minutes for May on Wednesday will be closely watched for further insights into the Fed’s policy direction. Market participants will be keen on any indications of a rate cut timeline.
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