- The dollar and Treasury yields soared Tuesday after upbeat employment data.
- There was caution ahead of the Fed policy meeting.
- The World Gold Council reported that India’s demand increased by 8% in March.
Gold prices fell over 1% on Tuesday due to a rally in the dollar and Treasury yields. Nevertheless, prices ended a third month of gains amid increased demand.
US employment costs (Source: US Bureau of Labor Statistics)
The dollar and Treasury yields soared Tuesday after upbeat employment data. The US Labor Department reported a higher-than-expected figure for employment cost growth, which will likely keep the Fed hawkish. The rally in the dollar made gold more expensive for foreign buyers, leading to a drop in demand.
Meanwhile, there was caution ahead of the Fed policy meeting, where the central bank will likely hold rates in the current range. However, the market will focus on Powell’s speech after the policy decision. Gold has fared well despite the ever-changing outlook for Fed rate cuts. However, with tensions in the Middle East easing a bit, market participants cannot hide from the fact that a delay in Fed rate cuts is bearish for gold. Moreover, there is a high chance that Powell will call for patience since policymakers have lost confidence that inflation will reach 2% soon. Therefore, gold prices might pull back further after the meeting.
However, gold ended April with gains of over 3%. Moreover, it was the third month of gains due to the recent surge in demand. The gains came despite the continued delay in rate cuts in the US. Notably, there was increased demand as geopolitical tensions pushed investors to safe-haven assets. There were concerns about a possible escalation in the war between Israel and Hamas. Such an outcome would have eroded investors’ money in risky assets like equities. Meanwhile, gold is considered a store of value, especially in uncertain times.
At the same time, there was an increase in consumer demand in Asian countries, including India and China. On Tuesday, the World Gold Council reported that India’s demand increased by 8% in March. However, given the recent price increase, demand might drop in 2024. Meanwhile, investors in China bought more gold because there was no better place to put their money. China’s economy has been fragile, and investors have lost money in the real estate market.
Finally, demand from central bank purchases supported gold prices. China’s central bank is among the biggest recent buyers of gold as it seeks to reduce exposure to risky assets.
