Gold prices held firm near record highs on Thursday, driven by increasing bets that the U.S. Federal Reserve will cut interest rates sooner than previously anticipated. This speculation has constrained gains in the dollar and Treasury yields, making the precious metal more attractive to investors.
Spot gold was up 0.3% at $2,464.90 per ounce as of 1155 GMT, following an all-time high of $2,483.60 reached on Wednesday. U.S. gold futures also climbed 0.3% to $2,468.20. The recent surge in gold prices reflects a broader market sentiment anticipating a shift in U.S. monetary policy towards a more dovish stance.
"Gold continues to shine on growing speculation around lower U.S. interest rates this year," said FXTM senior research analyst Lukman Otunuga. "Recent dovish comments by Fed officials, complemented with a broadly weaker dollar and subdued Treasury yields, have sweetened the appetite for the precious metal."
Otunuga added that further signs of a cooling U.S. labor market and more dovish remarks from Fed officials could sustain this upward momentum, potentially leading to new all-time highs for gold.
Fed Signals and Economic Data
Fed Governor Christopher Waller and New York Fed President John Williams have both indicated a shortening horizon toward looser monetary policy. Separately, Richmond Fed President Thomas Barkin expressed optimism about broadening declines in inflation. Lower interest rates typically increase the appeal of non-yielding assets like gold.
Gold's price trajectory for the second half of 2024 looks promising, according to a brief review by the London Bullion Market Association (LBMA). Analysts forecast continued strength in gold prices, underpinned by the anticipated shifts in U.S. monetary policy.
Physical Gold Demand and Market Dynamics
The World Gold Council reported that global physically backed gold exchange-traded funds (ETFs) saw their second consecutive month of inflows in June. However, the rapid rise in gold prices has impacted physical markets in South and Southeast Asia, with buying activity slowing down and some selling re-emerging. StoneX analyst Rhona O'Connell noted in a report that this is not unusual and that buyers are likely to return once they acclimate to the new price range.
Over the next six to 12 months, Citi analysts expect gold prices to rise to between $2,700 and $3,000 per ounce, while silver is forecasted to climb to $38 per ounce. On Thursday, spot silver rose 0.3% to $30.39 per ounce, platinum firmed 0.2% to $996.22, and palladium dipped 0.1% to $950.50.
U.S. Labor Market Weakness
The gold market is also reacting to signs of weakness in the U.S. labor market. Initial claims for state unemployment benefits increased by 20,000 to a seasonally adjusted 243,000 for the week ended July 13, according to the Labor Department. This was higher than the consensus estimate of 229,000 claims. The previous week's data was revised up to 223,000.
Unemployment claims have now reached their highest level since early August 2023. Despite the rise in unemployment claims, the gold market showed little immediate reaction, continuing to hover near record highs. August gold futures last traded at $2,470.100 an ounce, up 0.41% on the day.
The four-week moving average for new claims, which is considered a more reliable measure of the labor market due to its ability to smooth out week-to-week volatility, rose to 234,750. This represents an increase of 1,000 claims from the previous week's revised average of 233,750.
Economic Implications
Not only are American workers starting to lose their jobs, but it is becoming increasingly challenging for them to find new employment. Continuing jobless claims, which represent the number of people already receiving benefits, increased by 20,000 to 1.867 million during the week ending July 6. This is the highest level for insured unemployment since November 2021.
The combination of a cooling labor market and expectations of lower interest rates is contributing to the bullish sentiment in the gold market. As the economic landscape continues to evolve, investors are closely monitoring these indicators to gauge the potential for further gains in gold prices.
