Gold price has rebounded from $2,315 as US bond yields came under pressure on Monday. Investors are anticipating the Federal Reserve (Fed) to reduce interest rates twice this year, leading to increased buying interest in gold. The 10-year US Treasury yields dropped to near 4.25% on Monday, further supporting the positive sentiment towards gold. The US economic outlook has also improved as preliminary PMI expanded at a faster pace in June, indicating a potential economic growth that could benefit gold prices.
The US Consumer Price Index (CPI) report revealed that price pressures decelerated more than expected in May. Additionally, the preliminary S&P Global Purchasing Managers Index (PMI) report for June showed signs of moderate cooling in cost growth, further supporting the speculation of Fed rate cuts this year. The CME FedWatch tool suggests that the central bank will begin the policy-easing campaign at the September meeting, with subsequent rate cuts expected in November or December. The probability of a rate cut in September is currently at 66%, indicating a high likelihood of further monetary policy accommodation.
Gold’s price faced a sharp decline on Friday but has found buying interest near $2,315 as the US Dollar rose following the unexpectedly positive US PMI report for June. The Composite PMI jumped to 51.7, higher than expectations, leading to an upside in the US Dollar and making gold a more expensive bet for currency holders. Investors will closely watch the revised Q1 Gross Domestic Product (GDP) data and the core Personal Consumption Expenditure price index (PCE) for May, which will provide insights into the Fed’s inflation measures and potential interest rate cuts.
Gold price has been consolidating between $2,277-$2,450 for more than two months, with the 50-day Exponential Moving Average (EMA) near $2,318 providing support to the bulls. The 14-day Relative Strength Index (RSI) indicates indecisiveness among market participants, with potential pressure if the price breaks below the May 3 low around $2,277. On the other hand, breaking above the May 20 high of $2,450 could lead to a new trajectory for gold prices.
Gold has historically been used as a store of value, medium of exchange, and is now widely considered a safe-haven asset during turbulent times. Central banks are the biggest gold holders, diversifying their reserves to improve perceived strength and solvency of their economies and currencies. Gold has an inverse correlation with the US Dollar and US Treasuries, making it an attractive investment during times of dollar depreciation or financial instability. Factors such as geopolitical instability, recession fears, and interest rate movements can also impact gold prices significantly.
In conclusion, the rebound in gold prices amid US bond yield pressure and expectations of Fed rate cuts indicate a positive outlook for the precious metal. With central bank purchases and increasing gold reserves, as well as the safe-haven status during economic uncertainties, gold continues to be a preferred investment choice for many investors. Understanding the various factors affecting gold prices, including currency movements, interest rates, and geopolitical tensions, can help investors make informed decisions about their investment portfolio.
