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Gold futures eased off record levels on Wednesday but still posted the second-highest close ever, amid rising optimism for a September interest rate cut from the U.S. Federal Reserve as well as a weaker dollar.
U.S. Treasury yields have dropped to March lows, despite stronger than expected retail sales data released this week, and precious metals are gaining momentum as yields fall, and with the Fed officials emphasizing progress on inflation, the market is now pricing in a guaranteed rate cut in September, SP Angel analysts said.
“The main point is the surprisingly low inflation figures that came out of the U.S. a week ago,” Neil Meader at Metals Focus told Dow Jones, referring to both headline and core Consumer Price Index that fell more quickly than markets had expected.
Markets now see a 98% chance of a U.S. rate cut in September, according to the CME FedWatch Tool.
Front-month Comex gold (XAUUSD:CUR) for July delivery ended -0.3% to $2,454.80/oz, and front-month July silver (XAGUSD:CUR) finished -3.4% to $30.127/oz.
ETFs: (NYSEARCA:GLD), (NYSEARCA:GDX), (GDXJ), (IAU), (NUGT), (PHYS), (GLDM), (AAAU), (SGOL), (BAR), (OUNZ), (SLV), (PSLV), (SIVR), (SIL), (SILJ)
“It’s probably just a matter of time before we see the yellow metal hit the $2,500/oz milestone,” Swissquote Bank’s Ipek Ozkardeskaya said, adding that some profit-taking could kick in at that level, since gold is entering overbought territory.
However, gold’s upside could be limited by the “Trump trade,” ActivTrades analyst Ricardo Evangelista said; as the possibility of another Donald Trump presidency increases, so does the potential for higher tariffs and a higher U.S. budget deficit, which could lead to tighter monetary policy and thus depress gold prices.
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