Gold rallies on haven appeal and expectations of lower interest rates
LONDON (May 10) Gold price (XAU/USD) trades almost a percentage point higher in the $2,360s on Friday. The precious metal rises as increasing geopolitical tensions over Gaza solidify its safe-haven appeal.
The upside also results from concerns over the US labor market due to recent data, which have sparked speculation the Federal Reserve (Fed) may lower interest rates sooner than previously expected, increasing the attractiveness of the non-yielding precious metal.
Gold price rises on end of peace talks, US labor market concerns
Gold price rises due to its safe-haven appeal as peace talks between Hamas and Israel in Cairo break down and Israeli armor and military personnel amass around the city of Rafah, the last major urban center in Gaza not reduced to rubble.
The US, meanwhile, is withholding shipments of weapons and military aid to Israel after President Biden warned the country against mounting a full-scale attack on Rafah. Despite the warning, reports have come in of strikes to a mosque and several houses in the city, leading to the deaths of over a dozen people, including women and children, according to Reuters.
US Jobless Claims surprise to the upside
In the US, further evidence of a weakening labor market has reanimated expectations the Federal Reserve will need to cut interest rates sooner than previously thought.
US Initial Jobless Claims data for the week of May 3, released on Thursday, showed a higher-than-expected 231,000 rise when 210,000 had been expected from an upwardly revised 209,000 in the previous week.
This comes on the back of a Nonfarm Payrolls report that showed below-estimated readings for April in almost all key metrics measured.
The data suggests the US economy is struggling under the weight of the currently high interest rates environment and increases speculation the Fed may move to cut rates sooner than previously thought.
Commentary from Federal Reserve officials, however – most recently from Boston Fed President Susan Collins and Minneapolis Fed President Neel Kashkari – has leaned hawkish, with both arguing that inflationary pressures remain too high to consider reducing interest rates.
Major central banks mark a shift in stance
Globally most central banks are either cutting interest rates or signaling a willingness, leading to an environment in which interest rates appear to be peaking and declining – a positive for Gold.
On Wednesday, Sweden’s Riksbank cut interest rates for the first time since 2016, and the number of Bank of England (BoE) officials voting to cut rates on Thursday increased. At its March meeting, the Swiss National Bank (SNB) also opted to cut interest rates.
The European Central Bank (ECB) has all but guaranteed it will cut interest rates in June, and the Reserve Bank of Australia (RBA) accompanied its decision to hold interest rates steady at the last meeting, with dovish rhetoric.
FXStreet
