Fed Signals Ignite Gold’s Ascent

Gold’s meteoric rise was primarily fueled by growing expectations of a Federal Reserve rate cut in September. Fed Chair Jerome Powell’s comments suggesting potential cuts before inflation reaches the 2% target sent shockwaves through the market. This sentiment was echoed by other Fed officials, propelling the probability of a September rate cut to 98% according to the CME FedWatch Tool. As lower interest rates typically boost non-yielding assets, gold surged to an all-time high of $2,483.74 on Wednesday.

Economic Data: A Mixed Picture

While recent inflation data showed signs of cooling, mixed economic signals complicated the Fed’s decision-making process. Resilient retail sales contrasted with a slight uptick in unemployment benefit applications, creating a nuanced economic outlook. This uncertainty further bolstered gold’s appeal as a safe-haven asset.

Global Factors and Institutional Interest

China’s economic slowdown and ongoing geopolitical tensions in Europe and the Middle East contributed to gold’s allure. Institutional investors showed renewed interest, with global gold ETFs experiencing inflows for the second consecutive month in June. However, physical demand in Asia remained sluggish, with customers capitalizing on high prices rather than making new purchases.

The Inevitable Correction

As the week progressed, the market witnessed a classic “buy the rumor, sell the fact” scenario. Friday saw gold prices dip more than 2% as profit-taking kicked in and the dollar gained strength. The late-week sell-off highlighted the volatile nature of the current market and the risks of chasing rallies.