Gold prices (XAU/USD) maintained their position above $2,400 during Friday’s European session, buoyed by strong expectations of Federal Reserve rate cuts and ongoing geopolitical conflicts. The anticipation of aggressive rate reductions follows a recent stock market decline fueled by concerns over a potential U.S. economic slowdown, highlighted by a sharp deceleration in job growth and an increasing unemployment rate.
Federal Reserve officials have acknowledged the cooling labor market and expressed confidence that inflation is on track to meet the bank’s 2% target. Policymakers emphasized that their decisions will be driven by economic data rather than stock market fluctuations or political pressures. On Thursday, Chicago Fed President Austan Goolsbee reiterated this stance, stating, “We’re not in the business of responding to the stock market. We’re in the business of maximizing employment and stabilizing prices,” according to Reuters.
Geopolitical Tensions and Fed Expectations Drive Gold’s Appeal
Gold’s status as a safe-haven asset continues to strengthen amid rising tensions in the Middle East, where concerns grow over potential Iranian retaliation following the killing of a Hamas leader in an airstrike on Tehran.
Looking ahead, the gold market will closely watch the U.S. Consumer Price Index (CPI) data for July, set to be released on Wednesday. This data will be crucial in determining whether current market expectations for rate cuts are justified.
Market Snapshot: Gold Price Consolidates Near $2,430
The gold price has edged slightly lower from a three-day high near $2,430 but remains above the critical support level of $2,400. The near-term outlook for gold remains strong amid speculation that the Federal Reserve may begin cutting interest rates as early as September. However, there is division among investors regarding the Fed’s approach, with some expecting a 50 basis point (bp) reduction, while others predict a more cautious 25 bp cut.
According to the CME FedWatch tool, there is a 54.5% chance that the Fed will implement a 50 bp rate cut in September, with a total of 100 bp reductions expected by the end of the year.
In the broader market, the U.S. Dollar (USD) and bond yields corrected after struggling to maintain gains despite lower-than-expected initial jobless claims for the week ending August 2. The U.S. Dollar Index (DXY), which measures the greenback against six major currencies, slipped to 103.15 from a four-day high of 103.50, while the 10-year U.S. Treasury yield fell to around 3.97%.
Although the jobless claims were lower than anticipated, coming in at 233,000 compared to the estimated 240,000 and the previous 250,000 (revised from 249,000), the data has not significantly altered market expectations for imminent rate cuts.
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