- Treasury yields slipped after data revealed soft manufacturing activity in New York, raising bets for a November Fed rate cut.
- Markets are paying more attention to US growth and a faster-than-expected drop in inflation.
- Fed policymakers have shied away from making strongly dovish statements.
Gold prices rose on Tuesday and Wednesday as a decline in Treasury yields increased demand for the non-yielding metal. Meanwhile, market participants awaited more data from the US on sales and jobless claims for clues on the Fed’s future policy moves.
Gold (Source: Bloomberg)
Treasury yields slipped after data revealed soft manufacturing activity in New York, raising bets for a November Fed rate cut. A slowdown in the economy will push the US central bank to lower borrowing costs and spur growth. Meanwhile, lower interest rates increase the appeal of bullion, boosting prices. Gold has risen over 25% this year, partly due to expectations of lower interest rates
Since last week, Fed rate cut bets have fluctuated with incoming data. Initially, expectations fell when the September US CPI numbers were higher than expected. Notably, consumer prices increased by 0.3% monthly and 2.4% annually, lowering the likelihood of a November rate cut. Still, the impact was little because traders are convinced inflation will reach the Fed’s target. Therefore, a faster decline in price pressure has a more significant effect on rate-cut expectations.
On Friday, the US wholesale inflation figures revealed no change in September, missing forecasts for a 0.1% increase. The cooler-than-expected figures increased the likelihood of a 25-bps rate cut in November, boosting gold prices.
However, policymakers have shied away from making strongly dovish statements. Mary Daly said the US Central Bank would implement more rate cuts this year if economic data aligned with expectations. Meanwhile, Raphael Bostic expects only one more rate cut this year. Investors will now await US retail sales data for more clues.
Elsewhere, experts believe prices will remain supported due to uncertainty over the upcoming US elections. Demand for safe-haven gold increases when there is political uncertainty. The risks of turmoil increase when markets are unsure who will win the election. Therefore, the tighter the race, the more uncertainty and the greater the demand for gold.
Elsewhere, analysts expect some downward pressure to come from easing geopolitical tensions. Initially, fears of an escalation rose when Iran attacked Israel. Traders have been on high alert for a possible retaliation. However, Israel has said it will not attack Iran, easing fears of a wider war.
