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Gold climbs as anticipation of Fed Rate cuts increases appeal

May 16, 2024

Key points:

  • Platinum nears One-Year high: Platinum prices reach their highest level since May 22 of last year.
  • Gold eyes $2,400 level: Analysts suggest gold could soon capture the $2,400 per ounce mark.

Gold prices climbed slightly higher on Thursday, following a sharp rise in the previous session, as the dollar and bond yields weakened. This shift comes amid growing speculation that the U.S. Federal Reserve may cut interest rates as early as September.

Chart displaying XAU/USD exchange rate rising to 2391.73 with a trend of 0.26%, as anticipation of Federal Reserve rate cuts boosts gold's appeal. The chart features moving averages (MA) and MACD indicators, showcasing market reactions to potential monetary policy changes. Image hosted by VT Markets, a forex brokerage

Picture: Further upside for XAUUSD pair as seen on VT Markets app.

Spot gold rose 0.1% to $2,388.10 per ounce by 0255 GMT, after gaining more than 1% on Wednesday to reach its highest level since April 19. U.S. gold futures also increased by 0.1% to $2,393.20.

Dollar weakens, gold prices benefit

The U.S. dollar fell by 0.2% against a basket of other major currencies, making dollar-priced gold less expensive for holders of other currencies. Additionally, the benchmark 10-year U.S. Treasury yield dropped to its lowest point in over a month.

Fed Reserve cautious despite weak U.S. economic indicators

The recent U.S. consumer price index data, combined with a lackluster jobs report and softer-than-expected payrolls for April, have provided reassurance to Federal Reserve policymakers. They are keen to see continued progress on inflation before reducing borrowing costs. Bullion, known as an inflation hedge, benefits from lower rates since higher rates increase the opportunity cost of holding non-yielding gold.

Also read: 4 reasons why traders flock to safe-haven gold during global political tensions 

Fed officials optimistic about declining inflation

Chicago Federal Reserve Bank President Austan Goolsbee expressed optimism that inflation would continue to decline. This sentiment aligns with Fed Chair Jerome Powell’s recent comments, suggesting it is unlikely the central bank will need to raise interest rates again soon.

In other precious metals, spot silver fell by 0.5% to $29.56 per ounce, while palladium gained 0.3% to $1,012.93 per ounce. Platinum rose by 0.7% to $1,071.00, marking its highest level since May 22 of last year.

As the market continues to digest these developments, investors will closely monitor upcoming economic data and Federal Reserve signals, which could influence the trajectory of precious metal prices.

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