Gold prices recently edged up 0.15% amid thin trading during the U.S. Independence Day holiday. On Thursday, Gold (XAU/USD) traded above the AU$3,558 (US$2,400) mark after U.S. Consumer Price Index (CPI) data for June indicated cooling price pressures. This cooler-than-expected CPI data increases the likelihood of the Federal Reserve cutting interest rates in the near term, which historically benefits Gold by reducing the opportunity cost of holding the non-interest-bearing asset.
Economic Indicators Point to Rate Cuts and Bullish Gold Sentiment
The release of U.S. CPI data showed that inflation is cooling, making it more likely that the Fed will cut interest rates. U.S. CPI rose 3.0% year-on-year in June, lower than the expected 3.1% and down from May's 3.3%. On a month-over-month basis, CPI declined by 0.1% in June, against the anticipated 0.1% rise. Core CPI, excluding volatile food and energy components, also cooled to 3.3%, below the forecasted 3.4%. These figures suggest that inflation is approaching the Fed’s 2.0% target, increasing the probability of a rate cut, which is positive for Gold.
Powell’s Testimony and Market Expectations
Fed Chairman Jerome Powell's recent testimony to U.S. lawmakers struck a cautiously optimistic tone, further bolstering Gold prices. He indicated that the current Fed policy is restrictive enough to bring inflation down to the target level, implying that interest rate cuts could be on the horizon. Market indicators, such as the CME FedWatch tool, show a high probability of a 0.25% rate cut in September, which would lower the Fed Funds rate to an upper bound of 5.25%.
Central Bank Buying Supports Gold Prices
Despite the People’s Bank of China (PBoC) pausing its gold purchases for the second consecutive month, other central banks continue to hoard gold. The Bank of India bought nine tons of gold in June, the National Bank of Poland added four tons, and the Czech National Bank acquired two tons. Analysts at Citibank remain optimistic, predicting central bank demand to rise to around 1,100 tons in 2024, a 5.8% increase from the previous year, driven by trade war concerns and U.S. fiscal policies.
Technical Analysis: Gold’s Upward Trend
Gold has risen for three consecutive days, following a short-term bearish pattern that has now been partially invalidated. The price recovery suggests the potential for further gains. A break above AU$3,541 (US$2,393) would confirm a bullish continuation towards the AU$3,629 (US$2,451) all-time high. Conversely, a pullback to the 50-day Simple Moving Average (SMA) at AU$3,473 (US$2,344) remains a possibility.
Capitalising on Precious Metals with AUS and AGS
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Conclusion: Protect Your Wealth with Gold and Silver
As we navigate through economic uncertainties and potential rate cuts, investing in gold and silver remains a prudent strategy. The Gold Standard (AUS) and Silver Standard (AGS) tokens offer a reliable and innovative approach to maintaining your wealth over time. By adding these precious metals-backed tokens to your portfolio, you can mitigate risks and take advantage of market opportunities, ensuring a strong financial future.
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