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Gold Price Future: Rise and Global Market Challenges

Market analysis on behalf of Rania Gule Market Analyst at XS.com

 

April 1, 2024 (Investorideas.com Newswire) Gold began trading today Monday (XAU/USD) near a new all-time high of around $2265, as the market anticipates a data-packed week. Gold maintains its gains amid expectations for the Federal Reserve to lean towards interest rate cuts in June. Following Federal Reserve Chairman Jerome Powell's confirmation last Friday of the validity of the drop in core personal consumption expenditure inflation data for February, the Fed is seeking evidence of easing price pressures towards its 2% target.

From my perspective, the rising expectations for the Federal Reserve to cut interest rates, especially after two years of rate hikes, impact interest-bearing assets such as US bonds and enhance the value of gold investments. However, yields on the US 10-year Treasury bonds have slightly risen since the beginning of the day, amidst the US Dollar Index (DXY) holding around 104.50 points. This implies that the upward trend remains limited due to strong expectations of Federal rate cuts, while uncertainty ahead of the US nonfarm payrolls report and labor market data curbs the downward trend.

Thus, I believe gold prices are transitioning to sideways trading after hitting an all-time high near $2260. Demand for gold remains high with escalating geopolitical tensions worldwide and increasing market expectations for the Fed to start an interest rate-cutting cycle soon. Traders see a 68% chance of interest rate cuts announcement in June, up from 60% before the release of core personal consumption expenditure inflation data for February on Friday.

While Federal Reserve Chair Powell remains confident in progress in mitigating inflation, he acknowledged the bank's lack of need to rush in cutting interest rates given the strength of the economy and current labor market data. He emphasized the need for more progress on inflation before rate cuts. He cautioned against rushing on the timing of rate cuts, citing strong economic conditions and the labor market.

It's noteworthy that monthly and yearly core personal consumption expenditure inflation rose by 0.3% and 2.8% in February, as expected. However, January estimates were revised upward to 0.5% monthly and 2.9% yearly from previously estimated increases of 0.4% and 2.8%, respectively, bringing the Federal Reserve's preferred inflation gauge to its lowest level in nearly two years, supporting current interest rate cut expectations.

From my perspective, the US nonfarm payrolls report for March, scheduled for release on Friday, is the key event to watch as it's likely to provide more clarity on when the Federal Reserve might start cutting interest rates and whether cuts will indeed occur this year.

Today, markets are eagerly awaiting the US Manufacturing Purchasing Managers' Index (PMI) for March, with factory data expected to rise to 48.4 from 47.8 in February, remaining below 50.0 for the sixteenth consecutive month. A figure below 50.0 would indicate a contraction in US manufacturing activity during this period, favoring gold and against the dollar's strength.

I believe the US dollar remains strong, as markets started the new quarter with optimism, especially after China's Manufacturing and Services Purchasing Managers' Index (PMI) data surpassed expectations in March. On Sunday, China's official Manufacturing PMI jumped to 50.8 in March, compared to a contraction at 49.1 in February and exceeding estimates of 49.9. The non-manufacturing PMI also rose to 53.3 in the same period, up from 51.4 in February. Meanwhile, the Caixin China Manufacturing PMI rose to 51.1 in March on Monday, surpassing estimates of 51.0, indicating a rebound in the Chinese economy and thus providing support for gold prices.

Looking ahead, US nonfarm payroll data, scheduled for release on Friday, will be crucial for determining a clear timing for interest rate cuts, which will have a significant impact on the value of the US dollar and gold prices.

Therefore, I believe the return of US markets after the long Easter weekend holiday may trigger a profit-taking wave in gold prices, as markets adjust positions in anticipation of US employment data, to be released sequentially starting from Tuesday, which will inevitably affect market pricing for Federal rate cut expectations, thus affecting gold prices, which currently derive some strength from escalating geopolitical tensions worldwide.

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