Gold prices have recovered from a 0.5% decline last week and remain within reach of an all-time high. The precious metal has gained almost 20% for the year, mainly on expectations of a Fed rate cut this year.
The recent decline in price pressures has boosted policymakers’ confidence that they can now begin to reduce borrowing costs and refocus their attention on the labor market, which is showing clearer signs of slowing.
According to CME Group’s FedWatch tool, markets are pricing in a 49 percent probability that the Fed will cut its benchmark interest rate by 50 basis points in September.
However, Fed Governor Michelle Bowman said on Saturday she continues to see upside risks to inflation and continued strength in the labor market, suggesting she may not be willing to support a rate cut in September.
Investors are preparing for US producer price and consumer price index figures to be released this week, which will provide insight into inflation in the world’s largest economy. While the consumer price index is expected to show a slight increase in prices in July, annual readings are likely to continue to rise only slowly, analysts said.
In addition to expectations of an interest rate cut, strong purchases by central banks around the world and strong demand from Chinese consumers also supported the price of gold.
Gold continues to be supported by “geopolitical risks and expected interest rate cuts by the US Federal Reserve amid rising tensions” related to Iran, Israel and Ukraine, according to a report by Saxo Bank A/S published on Monday.
“However you look at it, gold is a well-traded commodity right now. Wall Street is unanimously optimistic, but macro funds’ positioning may now be exhausted without the threat of a recession,” TD Securities said in a statement.
(With files from Bloomberg and Reuters)
