Reasons supporting a strong rise in gold amidst renewed hopes for interest rate cuts


June 6, 2024 ( Newswire) The price of gold (XAU/USD) rose for the second consecutive day, reaching the highest level in two weeks on Thursday, around the $2373 area. The bias remains in favour of further upside after expectations of major central banks cutting interest rates rose. The Bank of Canada (BoC) cut interest rates yesterday for the first time in four years, and it is also expected that the European Central Bank (ECB) will cut interest rates for the first time since March 2016 at the end of the June policy meeting later today.

Markets now anticipate a greater chance of imminent interest rate cuts by the Federal Reserve amid signs of a slowdown in the US economy. Meanwhile, US Treasury yields remain near their lowest level in over two months and fail to support the dollar. This, along with ongoing geopolitical tensions due to continued conflicts in the Middle East, supports gold as a haven. This coincides with market anticipation of the release of the Non-Farm Payrolls (NFP) report on Friday.


I believe that the conflicting US economic data released yesterday reaffirmed expectations that the Federal Reserve will begin cutting interest rates later this year, pushing US Treasury yields lower and supporting gold prices in the medium term.

From my perspective, this, along with the decline in the US Personal Consumption Expenditures Price Index last week, indicates that inflationary pressures are easing, leading to a decrease in the yield on 10-year US Treasury bonds to its lowest level in two months, at 4.28%, and a decrease in the yield on 2-year US government bonds sensitive to interest rates to 4.731%, amid expectations that official job data will be below expectations.

I believe that the markets will remain cautious and cohesive as they await the release of weekly initial jobless claims data from the United States to gain some directional momentum, with the focus remaining on the details of the monthly US employment, or Non-Farm Payrolls (NFP) on Friday.


Despite the strong fundamental background supporting gold, short-term price action tends to be bearish. Gold trend indicators no longer agree on the bullish trend amid the recent price correction. However, this short-term negative bias may weaken due to strong Asian demand for currency hedging purposes, especially against the US dollar. I see gold as strongly bullish in the medium and long term, as evidenced by trading activity in Chinese gold exchange-traded funds resuming at a faster pace since the buying activity that lifted prices to all-time highs in April. In my opinion, precious metals have recently and strongly turned into a means of hedging against currency depreciation, as renewed pressures in Asia indicate emerging signs of significant buying activity in the medium term.

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