Gold prices edged higher on Tuesday as investors awaited the Federal Reserve’s commentary on its monetary policy and a deluge of U.S. economic data due later in the week for more clues on the pace and scale of the Fed’s interest rate cuts.
As per Gold Update by Prithviraj Kothari, Gold prices were modestly higher and in early U.S. trading Tuesday, just ahead of major U.S. economic data releases that were lined up. Globally gold does get influenced by many factors, but this time its majorly coming from the US- Presidential elections, rate cuts, important numbers – all of these clubbed together have been or will be very supportive for gold.
While the yellow metal is driven by diverse factors, the US — and by extension its leader — impacts many of them, including the global geopolitical environment, interest rates and the performance of the US dollar.
Trumps Presidential Victory– A Trump presidency is viewed as broadly positive for the outlook for gold. Heightened political uncertainty could be a positive driver for gold as a general hedge against geopolitical risk.
The analysts noted that the likelihood of a second Trump presidency has increased in recent weeks, and that the former president Favors weakening the dollar and increasing tariffs on imports.
Moreover, Trump victory assures of ban on Chinese goods imported into the US. This would compel the Chinese to shift their dollar dependency, in fact since a long time they have been adding gold to their reserves with a clear motive of de-dollarization. Which furthers means an increase in demand for gold, which will lead to a rise in prices.
US Policies- Trump’s platform of tax cuts, tariffs and weaker regulation are viewed as inflationary on Wall Street and could even force the Federal Reserve to increase interest rates again.
Reinflationary policy and tariffs are part of Trump’s goal to support US exports, but could also support the price of risk assets, such as gold. The strength of both the gold and dollar prices has been poorly correlated year-to-date, but fundamentally should be supportive of gold.
Interest Rates-The prospect of lower rates bodes well for gold, given that it reduces the opportunity cost of investing in the yellow metal. High rates had battered gold prices over the past two years, although increased safe haven demand still helped the yellow metal hit record highs. As per Prithviraj Kothari, markets continue to aggressively price in a rate cut by the end of summer even as inflation remains above the central bank’s 2% target. The U.S. Department of Commerce said its core Personal Consumption Expenditures price index in the last 12 months rose 2.6%, unchanged from last month.
Economists have said that the latest inflation data does not stop the Federal Reserve from cutting rates in September. There are growing expectations that the central bank will at least lay the groundwork for a September cut at next week’s meeting.
Despite the near-term volatility, analysts note that gold has maintained a solid uptrend as markets increasingly expect the Federal Reserve to cut interest rates by the end of the quarter.
As per Prithviraj Kothari’s view on Gold, Gold prices are expected to maintain their bullish momentum as its clear interest rates are headed in only one direction.
While the Federal Reserve’s monetary policy meeting will be the main economic event next week, it will share the spotlight with the U.S. Labor Department as July nonfarm payroll numbers will be released Friday.
Along with cooling inflation, economists expect that slowing momentum in the U.S. labour market will prompt the Federal Reserve to ease interest rates before the end of the year.
Market focus is also on a series of U.S. employment data scheduled to be released this week including the pivotal non-farm payrolls report due on Friday.
Economic data to watch:
Wednesday: ADP Nonfarm Payrolls; US Pending Home Sales,
Thursday: Bank of England monetary policy decision; weekly U.S. jobless claims, ISM Manufacturing PMI
Friday: U.S. Nonfarm Payrolls
The overall outlook for gold remains positive on the back of geopolitics and economic uncertainty, and the evolution of the US political scene will remain supportive as a bull case can be made for both likely Presidential election outcomes. Rising Middle Eastern tensions are also supportive, but it is arguable that much of this is now priced in and we could still be marking time.
