- Gold traders eagerly await Wednesday’s FOMC meeting.
- Economists have forecasted two Fed rate cuts in September and December.
- Data on Tuesday showed job vacancies in the US were more than expected at 8.18M.
Gold prices rose 1% on Tuesday and extended these gains on Wednesday as investors hoped for rate cut signals from the Fed meeting. The rally in gold came despite positive US data highlighting the economy’s resilience.
Gold traders eagerly await Wednesday’s FOMC meeting for direction on when the Fed might start cutting rates. Lower interest rates reduce the opportunity cost of holding gold, boosting prices.
Economists have forecasted two Fed rate cuts in September and December. However, they warned that policymakers might maintain caution due to the robust economy. At the last meeting, policymakers projected one rate cut this year in December.
Since then, data has revealed softer-than-expected inflation. However, the economy has also remained resilient. Although policymakers have gained confidence inflation will reach the 2% target, cutting rates is unnecessary. A robust economy means demand remains high, increasing the risk of an inflation spike.
Last week, GDP data showed better-than-expected economic growth. At the same time, the report revealed that inflation was easing in June. Meanwhile, the core PCE report aligned with expectations, increasing marginally. Nevertheless, market participants are fully pricing in a rate cut in September.
US job openings (Source: Bureau of Labor Statistics)
Furthermore, data on Tuesday showed job vacancies in the US were more than expected at 8.18M. Economists had forecasted job openings at 8.02M. Therefore, demand for labor remains high, showing a still-tight market. The Fed closely monitors the labor market, which drives a big part of the economy. Policymakers are careful not to cause too much damage to this sector. Therefore, any sign of weakness increases the urgency for rate cuts. Although recent data has shown an easing, the labor sector is not weak.
Meanwhile, the CB consumer confidence report showed that consumers are finding it harder to find jobs, indicating slower demand. Still, confidence in the economy rose more than expected.
Investors will wait for the nonfarm payrolls report on Friday for more clues on rate cuts. Economists expect the US economy to add 176,000 jobs in July, a decrease from 206,000 jobs in June. Meanwhile, the unemployment rate might hold at 4.1%.
A more dovish FOMC policy meeting will likely boost gold prices. However, there is a risk that policymakers will say there is no hurry to cut rates, which could weigh on prices.
