Businessicy – Gold prices experienced a decline on Tuesday due to the strengthening of the US dollar and rising bond yields. Despite expectations of a potential interest rate cut by the Federal Reserve in September and escalating geopolitical tensions in the Middle East, gold remained relatively stable after a sharp drop in the previous session.
According to CNBC on Wednesday (August 7, 2024), spot gold prices fell by 0.80% to $2,388.34 per ounce. The price of gold dropped by 1.5% in the previous trading session, driven by global sell-offs amid ongoing recession concerns in the US. Meanwhile, US gold futures closed down 0.5% at $2,431.60.
Federal Reserve policymakers dismissed the notion that weaker-than-expected July employment data signals an impending recession, but they also cautioned that interest rate cuts might be necessary to prevent such an outcome.
Gold is often viewed as a safe-haven asset amidst economic uncertainty and benefits from a low-interest-rate environment. Forex.com Market Analyst Fawad Razaqzada noted that investors are anticipating a rate cut from central banks, which could either limit declines in gold prices or drive them to new record highs. He forecasts that gold prices could reach $2,500 in the short term. The CME FedWatch Tool indicates a 100% chance of an interest rate cut in September.
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Although gold is considered a safe refuge during times of uncertainty, it was not immune to Monday’s sell-off, as investors liquidated assets broadly. Meanwhile, US government bonds gained popularity, with the 10-year Treasury yield hitting its lowest point since mid-2023, due to worsening recession fears following disappointing July payroll reports.
However, analysts suggest that gold, which has risen over 16% this year, might regain strength moving forward due to ongoing economic and political uncertainty and anticipated interest rate cuts from the Federal Reserve, which would be favorable for gold as a zero-yield asset. Market expectations now predict that the central bank may cut rates by up to 50 basis points in its September meeting.
“Growing geopolitical tensions and recent hopes for larger Fed rate cuts will create favorable conditions for gold. Ultimately, gold is likely to reach new record highs once tensions ease,” said Han Tan, Chief Market Analyst at Exinity Group.
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