Gold prices continued to strengthen in early trading on Thursday, after recovering from a small decline yesterday. Investors are seen returning to safe assets such as gold due to increased global uncertainty and increasingly clear signals that the US Federal Reserve (Fed) may change its monetary policy direction soon.
The US dollar continued to weaken as investors became more confident that the Fed will start cutting interest rates as early as September, following gloomy economic data and increasingly obvious weakness in the US jobs market.
Not only that, global trade tensions have again stolen attention, thus increasing demand for gold, which is synonymous with a hedge of value in uncertain situations.
Why is Gold Rising? Here's the Reason:
1. Expectations of a US Interest Rate Cut Rise AgainThe market is now increasingly confident that the Fed will start easing monetary policy after the US services and jobs market data came out weaker than expected. The weakness of the US dollar due to these expectations has supported gold prices to continue to rise.
2. International Trade Tensions EscalatePresident Donald Trump has proposed a new 15% tariff on all imports from Japan, according to a White House report. India has also been slapped with a new 25% tariff on its oil exports from Russia, and there is a possibility of further action against China. The developments have investors worried and prompted them to seek refuge in gold.
3. Focus on Next US Economic DataInvestors are now awaiting the weekly jobless claims and second-quarter labor costs data from the US tonight. If the data is weak, it will reinforce concerns about an economic slowdown and accelerate expectations for an interest rate cut, which in turn will support gold.
Key Events to Watch for Markets:
US Jobless Claims & Labor Costs Data (Tonight)The market will be watching closely for signs of stress in the labor market. If the data is weaker than expected, it is likely that the Fed will be more inclined to cut rates, which is good for gold.
Announcement of New Appointments by the FedThe market is awaiting the replacement of Governor Adriana Kugler and Chairman Jerome Powell. Any hint of political intervention could cause volatility in the currency market and boost demand for gold.
New Tariff Risks The possibility of additional action against Asian countries remains an active risk. Any escalation in trade tensions could trigger capital outflows from risky assets to safe havens such as gold.
Fed Officials' Speeches The tone of Fed officials' speeches will be scrutinized for clues as to whether easing policy will continue. However, if the Fed signals that they are still 'hawkish' (watchful of inflation), gold's rise could be temporarily halted.
Conclusion: Gold Still on a Bullish Track
Gold prices continue to show strength as investors focus on the possibility of a rate cut by the Fed and escalating geopolitical tensions.
The failure of the US dollar to rebound also confirms that the market sees the Fed as having little choice but to act to support the economy.
The short-term still favors gold prices, and if prices can break through the levels around $3,387–$3,400, it has the potential to surge higher to $3,440.
However, the future direction will still depend on current economic data and political developments, but so far, investor interest in gold appears to remain intact.
