Price Indicator

Gold Focus :

• ICDX gold price rose 2.47% this week (1/7-5/7)
• Increased speculation of a Fed rate cut in September

Market Review

Gold prices strengthened to $2,388.88 per Troy Ounce compared to the previous week due to the increased speculation of Federal Reserve (Fed) rate cut in September that further weakened the US Dollar as well as US nonfarm payrolls that increased by 206,000 jobs compared to last month, according to the Labor Department report.

Expectations of an interest rate cut by the Fed are increasing in line with the recently released US economic data. US economic data on 28/6 showed that the annual Personal Consumption Expenditure (PCE) Price Index fell to 2.6% in May from 2.7% previously, and Core PCE also slowed to 2.6%. These conditions raised market expectations that the Fed might cut interest rates in September. However, Fed Governor Michelle Bowman on 27/6 emphasized that a rate cut is not yet a serious consideration. The Fed kept the benchmark interest rate in the range of 5.25%-5.50% and stated that additional studies need to be conducted to ensure a sustained decline in inflation before making a rate cut.

Furthermore, increased US nonfarm payrolls were also a key factor to the increase in gold price movements. Data for May was revised down sharply to show job additions of 218,000 compared to 272,000 previously reported. The unemployment rate rose to 4.1%, slightly higher than the 4.0% forecast. The latest economic data pointed to a weakening labor market with an increase in the number of unemployed to the highest level in 2.5 years and the ADP Employment report showing lower-than-expected additional private jobs. Markets are now also looking forward to nonfarm payrolls data which is seen to show a slowdown in employment growth and stability in the unemployment rate at 4.0%, along with changes in the labor force participation rate.

Market View

Interest Rate Cut by Federal Reserve Expectations

Market participants' expectations for an interest rate cut by the Federal Reserve increased as the Manufacturing Purchasing Managers' Index (PMI) for June declined to 48.5, which was below market estimations and added to fears of an economic slowdown that could affect the Fed's interest rate decision. Therefore, Atlanta Fed President Raphael Bostic indicated the possibility of a rate cut in the fourth quarter and in 2025. In addition, the ISM Non-Manufacturing index also fell to a four-year low of 48.8, which also added pressure on rate cut expectations.

Geopolitical Tensions in the Middle East

Israeli forces have intensified their military operations in Gaza region by ordering Palestinians living in the eastern region of Khan Younis, the second largest city in Gaza, to immediately leave to an undetermined humanitarian zone. The Israeli military evacuation order came after the Palestinian Islamic Jihad armed group fired a series of rockets into Israel. US Secretary of State Antony Blinken said that Washington would not accept Israel's occupation of Gaza and a ceasefire was needed to ease tensions in the region.

WEEKLY ECONOMIC DATA & EVENTS CALENDAR

Source: ICDX Research