Hopes of a Federal Reserve rate cut next week are driving the gold price higher with a series of record highs recorded in recent days.
Gold was last trading at $3,648 as investors positioned for action from the Fed to help stem a slowdown in job creation that threatens the growth outlook for the world’s largest economy.
“Gold is in a powerful uptrend and has set a record high near $3,648/oz, lifting year-to-date returns to around 45%, reflecting the confluence of falling U.S. Treasury yields, a weaker USD, and expectations that the Fed will cut rates soon,” said Linh Tran, Market Analyst at XS.com.
“The accompanying macro backdrop also supports this positive trend as data indicate the U.S. economy is weakening. The U.S. labor market has recently cooled, with NFP rising by only 22K versus the 75K consensus, the unemployment rate at 4.3%, JOLTS at 7.18 million, while the manufacturing PMI at 48.7 shows a slower pace of contraction.”
Tran continued to point to data later this week that could either upset the current narrative or further cement the chances of a rate cut.
“The upcoming “catalyst” is the U.S. CPI/PPI this week and the FOMC meeting on September 18, where the market leans toward a 25-basis-point cut—indeed, discussion of 50 basis points has also emerged,” Tran said.
“If inflation comes in “softer,” the easing narrative will be reinforced: real yields would continue to cool and the USD would weaken—creating a favorable environment for gold. Conversely, “hot” data could push yields and the USD higher, potentially triggering a technical correction in gold before the primary trend is reassessed.”
Geopolitics have taken a back seat to interest rates in recent weeks, and gold bulls will take comfort that a number of potential flare-ups could provide additional support for the price.