- Demand for the yellow metal increased due to a weaker dollar and lower bond yields.
- The US gross domestic product increased by 2.6% in the fourth quarter.
- Data showed a decline in corporate profits in the fourth quarter.
On Thursday, gold prices increased by almost 1% as demand for the precious metal increased due to a weaker dollar and lower bond yields. At the same time, investors awaited US inflation data to determine the Federal Reserve’s next move.
The dollar index dipped 0.5%, making gold more attractive for foreign buyers, while benchmark 10-year Treasury yields eased.
Bart Melek, director of commodity strategies at TD Securities, says, “a large portion of this rally continues to be a short covering rally.” “The catalyst here is the persistent belief that rates in the US will peak,”
According to data, the US gross domestic product increased by 2.6% in the fourth quarter. On Friday, investors will receive core personal consumption expenditures (PCE), the Fed’s preferred inflation indicator.
Investors will be looking closely at the statistics for hints about the direction of the monetary policy of the US central bank. The CME FedWatch tool indicates a roughly 50/50 possibility that the Fed will keep interest rates at their current levels at its meeting in May.
According to Melek, anything below estimates on the core (PCE) would suggest that the Federal Reserve’s tight monetary policy is not as necessary as previously thought.
Richmond Fed President Thomas Barkin stated that inflation remains too high and may take longer than anticipated to decline. On the other hand, Federal Reserve Bank of Boston President Susan Collins stated that it appeared likely that there would only be one additional rate increase this year.
Commerzbank predicted that the price of gold would drop to around $1,900 per troy ounce in the upcoming months from its previous estimate of $1,800 per troy ounce.
The number of Americans making new claims for jobless benefits marginally increased last week. However, there were still no signs that the tight labor market was affected by the tightening credit conditions.
However, the risks to the US economy are growing. Other data released on Thursday showed a decline in corporate profits in the fourth quarter that was the largest in five years. This was partly due to fines and penalties imposed on various companies. A weaker economy supports the case for a Fed pause and higher gold prices.