Gold futures surged on Monday, rebounding above the critical 50-day moving average, propelled by economic indicators hinting at possible interest rate adjustments by the Federal Reserve later in the year.
Following Friday’s downturn, gold futures touched their lowest level since achieving the historic peak of $2477.10 and a record closing price of $2461.40 on Monday, May 20. Subsequently, a swift and pronounced three-day decline ensued, culminating in a low of $2351 on Thursday, May 23. Notably, between May 22 and May 23, gold depreciated by over $88 per troy ounce, maintaining sideways consolidation until last Friday’s nadir.
The resurgence in gold prices stemmed primarily from mounting apprehensions regarding the U.S. economic outlook. The Institute for Supply Management (ISM) revealed a second consecutive slowdown in U.S. manufacturing activity for May, with new orders for goods experiencing the sharpest decline in nearly two years.
This unsettling economic data, coupled with a moderation in inflation indicated by the Personal Consumption Expenditures (PCE) price index report released on Friday, bolstered expectations of potential Federal Reserve intervention. Analysts now anticipate one or two rate cuts this year to buttress the economy.
Gold, historically perceived as a haven asset during periods of economic uncertainty and low interest rates, has regained favor among investors amidst these developments. The recent data releases have rekindled optimism that the Federal Reserve’s stringent rate hikes, aimed at taming inflation, may have achieved their intended effect, paving the way for prospective monetary policy adjustments later in the year.
According to Reuters, “U.S. manufacturing activity slowed for a second straight month in May as new goods orders dropped by the most in nearly two years, but a measure of input inflation fell back from the highest since mid-2022, a monthly survey showed on Monday.”
The recent dip in gold prices, which saw the precious metal slipping below its 50-day moving average for the first time since late February, was attributed to fluctuating expectations surrounding Federal Reserve rate decisions. However, the latest economic data has reignited bullish sentiment in the gold market, with investors eyeing potential monetary easing in the months ahead.
As the Federal Reserve navigates the intricate balance between fostering economic growth and managing inflationary pressures, the trajectory of gold prices is expected to remain closely intertwined with the central bank’s policy adjustments and the broader economic landscape.
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