Gold Rises Higher on Expectations of Fed Cutting Interest Rates

Gold’s upward trend this week is an extension of its three quarterly gains.

Gold price rises further and recorded a back-to-back weekly gain due to the expectations of the Federal Reserve’s decision to cut interest rates by the end of the year. If we look at the charts, bullion traded above $2,350 an ounce after rising by more than 1% this week.

The upward trend can be ascribed to the expectation in the market that the Federal Reserve can cut interest rates towards the end of the year. The expectation doesn’t ring hollow as inflation seems to be coming down now.

As per the U.S. Bureau of Labour Statistics, the consumer price index (CPI) rose 3.3% year-over-year (YoY) in May 2024. This is the best CPI figure in the last three months and is only slightly better than the 3.4% gain in April. Rate cuts are likely, if not now, then later this year as inflation comes down to the Fed’s target of 2%.

Image: Gold/USD trading chart, BitDelta

Still a long way to go, this is a very different scenario than from the first quarter of 2024 when the possibility of rate cuts this year seemed nearly impossible as the inflation data was very distressing.

Fed chair Jerome Powell underlined the "disinflationary path" of recent economic data. However, he refused to comment when asked if a rate cut is possible in September 2024. But the market is betting on the next rate cut in September.

Gold’s upward trend this week is nothing but an extension of its three quarterly gains. Central bank purchases and geopolitical tensions have led to this price rally, with gold prices hitting a record in May. Other precious metals, along with gold, also gained this week. Silver rose more than 4% this week, while platinum and palladium also performed better.

The market is now looking forward to the nonfarm payrolls report this weekend to get more clarity on U.S. rate cuts.