- The dollar and Treasury yields declined after weak US economic data
- The US labor market was progressively slowing down.
- The probability of a 25-basis-point increase in interest rates in May, which, according to a Reuters poll, will be the last, is currently 88%.
On Thursday, gold prices surged above the crucial $2,000 barrier once more as the dollar and Treasury yields declined. Weak US economic data supported the argument for the Federal Reserve to stop raising interest rates.
A different data set revealed fewer existing house sales and significantly lower-than-expected factory activity in the mid-Atlantic region. At the same time, weekly US unemployment claims nudged up last week, suggesting the labor market slowed down.
The decline in manufacturing and retail sales and the loss of labor market momentum increased the likelihood that a recession might start as early as the year’s second half.
According to the Fed’s “Beige Book” report on Wednesday, job growth “moderated somewhat” in early April. ” Additionally, it mentioned contacts’ reports of a loosening labor market.
The housing sector has entered a recession due to the Federal Reserve’s aggressive interest rate hike campaign. Residential investment has fallen for seven consecutive quarters.
Gold has become more attractive amid economic uncertainty and a falling dollar. The yellow metal would benefit more if the Fed paused its rate hike campaign.
The releases caused the dollar index to decline by 0.2% and decreased benchmark Treasury yields, boosting gold.
The probability of a 25-basis-point increase in interest rates in May, which, according to a Reuters poll, will be the last one, is currently 88%. The Fed will likely keep rates stable for the remainder of 2023.
According to DailyFX analyst Warren Venketas, “This week has seen some aggressive Fed speak, and another round of that narrative could give the greenback a boost, leaving gold vulnerable on the downside.”
New York Fed President John Williams stated that inflation was still problematic and the Fed would take action to bring it down.
Fed’s Loretta Mester indicated on Thursday that there are still more rate hikes in the Fed’s future. However, the rapid effort to raise borrowing costs over the past year is ending.
The opportunity cost of storing gold that does not pay interest increases as rates rise.
Traders will watch for additional comments from Fed policymakers this week, before their blackout period on April 22, in preparation for the central bank’s meeting on May 2-3.