Gold prices were on track to snap a two-session winning streak on Friday but were headed for a weekly and monthly gain, supported by a weaker US dollar, easing inflation and the Federal Reserve’s decision to keep interest rates unchanged.
As of 7:04 a.m. IST, spot gold was down 0.4 per cent or USD 16 at USD 4,087.9 per ounce. Bullion was on track to gain about 1 per cent for the week and nearly 2 per cent for July.
On the domestic front, MCX gold and silver futures were not trading at the time of writing. In the previous session, gold futures settled over 1 per cent higher at Rs 1,43,320 per 10 grams, while silver futures ended at Rs 2,19,888 per kg.
Why did gold prices rise this week?
Weaker US dollar
The US dollar index, which measures the greenback against a basket of six major currencies, has fallen more than 1% so far this week, lending support to gold prices.
A weaker dollar typically benefits gold as it makes the precious metal cheaper for buyers using other currencies, thereby boosting demand.
However, on Friday, the dollar index edged up around 0.2% after falling in the previous session, limiting gains in bullion.
Fed keeps interest rates unchanged
The US Federal Reserve, at the conclusion of its July 29 FOMC meeting, left its benchmark interest rate unchanged at 3.50-3.75 per cent in a 9-3 vote.
Steady interest rates generally support gold by keeping the opportunity cost of holding the non-yielding asset relatively stable while reducing policy uncertainty.
Investors are now turning their attention to the Fed’s next policy meeting on September 15-16. According to CME’s FedWatch Tool, markets are pricing in a 63 per cent probability of a rate hike at the September meeting. While those odds have increased from the previous session, they have eased from nearly 80 per cent seen last week.
Softer US inflation
US inflation cooled in June, although economists expect the moderation could prove temporary amid rising geopolitical tensions in the Middle East that have pushed up oil prices.
The Personal Consumption Expenditures (PCE) Price Index, the Fed’s preferred inflation gauge, rose 3.7 per cent year-on-year in June, slowing from 4.1 per cent in May, according to data released by the Commerce Department’s Bureau of Economic Analysis on Thursday.
Cooling inflation strengthens expectations that the Fed may not need to tighten monetary policy as aggressively, which is generally supportive for gold prices.
What to watch next week for gold?
After a positive week for bullion, investors will closely monitor developments surrounding the US-Iran conflict, which could influence bullion’s demand.
Market participants will also track key US economic data, including the ADP employment report, JOLTS job openings, weekly initial jobless claims and the monthly non-farm payrolls report. These indicators will provide fresh clues on the strength of the US economy and the Federal Reserve’s policy path, which could determine the next move in gold prices.
(Disclaimer: The above article is meant for informational purposes only and should not be considered as any investment advice. ET NOW DIGITAL suggests its readers/audience to consult their financial advisors before making any money-related decisions.)
