- Investors are factoring in nearly 100 basis points of US interest rate cuts next year.
- The latest report on Americans filing new unemployment claims hit a three-month high.
- Gold has risen this week following softer-than-expected inflation data.
Gold surged Thursday, with investors factoring in nearly 100 basis points of US interest rate cuts in the coming year. Thursday’s weak US economic data supported this expectation. Futures markets now indicate 98 basis points of Fed rate cuts for next year, up from 73 bps a week ago.
US jobless claims (Source: US Labor Department)
The latest report on Americans filing new unemployment claims, which reached a three-month high, suggests a gradually cooling labor market.
Moreover, Thursday’s weekly jobless claims report revealed unemployment rolls expanding to levels last seen two years ago. The labor market slowdown aligns with decreased demand due to higher interest rates, indicating a slowing economy.
This week’s data showed easing inflation and a moderation in consumer spending, supporting the expectation that the Fed’s tightening cycle is complete. This, in turn, supports gold, which has suffered amid recent rate hikes. Peter Dragicevich, a strategist at Corpay, noted that while the projected easing is a bit aggressive, the overall direction appears correct.
He emphasized, “The US inflation pulse has turned, and the negative consequences of past policy tightening are starting to manifest.” As the next Fed easing cycle becomes apparent and US yields decrease while growth returns to the norm, expectations are for the gradual rise in gold over the next few quarters. Gold has risen this week following softer-than-expected inflation data.
Data revealed unchanged US consumer prices in October. Additionally, US producer prices recorded their most significant decline in three-and-a-half years during the same month, serving as the latest signal of easing inflation pressures.
“The positive results from CPI and PPI persist in bolstering gold prices. Moreover, the anticipation of inflation’s further decline adds to the belief that the Fed has concluded its interest rate hikes,” explained David Meger, director of metals trading at High Ridge Futures.
Traders express confidence that rates will not rise further, with futures now indicating a 1-in-3 chance of the first rate cut by March. Karl Schamotta, head market strategist at Corpay in Toronto, noted that while markets anticipate a swift Fed pivot towards rate cuts in 2024, historical precedent suggests a substantial economic downturn would be necessary for such a shift.