- US 10-year Treasury yields hit a two-month low on Wednesday, supporting gold.
- Wednesday’s data revealed a greater-than-expected drop in new US unemployment claims.
- US consumers expected higher inflation this month in the near and long term.
On Thursday, gold prices rose as the US dollar weakened, but investors stayed on the sidelines due to holiday-thinned trading and uncertainty about the Federal Reserve’s rate path. However, gold was heading for a second consecutive weekly gain.
Financial markets in the past week witnessed declining yields and a weakening US dollar, which favor an upward movement in gold prices. The dollar index was poised for a second consecutive weekly drop, reducing the cost of gold for holders of other currencies.
StoneX analyst Rhona O’Connell stated, “Without new catalysts, I doubt gold can sustain prices above $2,000 for the year.” Moreover, she highlighted supportive factors like geopolitics and potential banking stresses. However, she noted that prices will likely range unless these factors escalate.
The dollar weakened by 0.1% against major currencies, and US 10-year Treasury yields hit a two-month low on Wednesday, supporting gold. ActivTrades senior analyst Ricardo Evangelista mentioned the dollar’s minor decline after recent economic data but described it as a normal market movement due to lower liquidity.
Investor expectations for 2024 rate cuts fell after Wednesday’s data revealed a greater-than-expected drop in new unemployment benefit claims. For the week ending on November 18, initial claims for state unemployment benefits decreased by 24,000 to 209,000. This decline fully offset the previous week’s surge, which had pushed claims to a three-month high.
US consumer inflation expectations (Source: University of Michigan)
A University of Michigan survey on Wednesday revealed that consumers this month expected higher inflation in both the near and long term. The anticipation of increased inflation, particularly over the next five years, could raise concerns among policymakers and weigh on gold prices.
Since March 2022, the Fed has raised its policy rate by 525 basis points, bringing it to the current range of 5.25%-5.50%. Traders widely anticipated the Fed to maintain rates in December, with about a 26% chance of a rate cut as early as March.
Meanwhile, in their recent meeting, Fed officials agreed to proceed cautiously, raising interest rates only if progress in controlling inflation stops.
The divergence between market expectations for rates and the information from the Fed minutes has mostly caused gold prices to drift.