Gold prices have seen a significant rise, trading at $2,372, which represents a gain of 0.68% at the time of the MCX closing. The MCX August gold futures were also up by 0.83%, reaching Rs 73,123. This increase in gold prices is linked to several recent economic events and data releases.
Gold prices surged on Thursday, bolstered by a series of interest rate cuts from major central banks and mixed economic data from the United States. The European Central Bank cut its benchmark rate by 25 basis points to 3.75%, a move widely anticipated by the market. Despite the ECB’s lack of clear guidance on future rate cuts, this decision has sparked optimism among traders. They now hope that the US Federal Reserve might follow suit, especially given the recent disappointing US economic data. This sentiment was further reinforced by the Bank of Canada’s rate cut earlier in the week.
In the US, the latest economic indicators have been a mixed bag, adding to the uncertainty and potential for a rate cut by the Federal Reserve. The Institute for Supply Management services data for May showed an index of 53.80, which was better than the forecast of 51. This indicates that the US services sector managed to stay in the expansion zone, albeit slightly.
The ADP employment data reported a lower-than-expected increase in jobs, with only 152,000 new jobs added compared to the forecasted 175,000. This precursor to the crucial nonfarm payroll report, set to be released on Friday, suggests potential softness in the US labor market. Additionally, initial jobless claims rose to 229,000 from the previous week’s 221,000, and the first-quarter final estimate for unit labor costs came in at 4%, below the expected 4.9%, indicating reduced hours and weaker output.
The ECB’s decision to cut the key deposit rate was expected, yet the Euro remained stable. This stability is attributed to the ECB’s lack of clear future guidance and the upgrade in its inflation forecast to 2.2% by 2025. The ECB also lifted this year’s economic expansion forecast to 0.90% from 0.60%. These factors combined to prevent a significant drop in the Euro, even as traders digested the rate cut.
In the broader market, the US Dollar Index has been trending down, currently at 104.21, while ten-year US yields are holding steady around 4.30%. These developments support higher gold prices. Furthermore, global central banks continued their gold-buying spree in April, with the World Gold Council reporting healthy purchases. Turkey’s central bank led the way with 11 tonnes of gold, while China’s central bank bought just under two tonnes. Chinese investors are also piling into international gold, driven by onshore price premiums and concerns over the shaky real estate market and currency stability.
For gold traders, the immediate focus remains on the upcoming US nonfarm payroll report. A softer report would likely increase the likelihood of a Fed rate cut, potentially pushing gold prices to the significant level of $2,400. Support levels for gold are currently seen at $2,350 (Rs 72,400), $2,340 (Rs 72,100), and $2,315 (Rs 71,300), while resistance is noted at $2,380 (Rs 73,400), $2,400 (Rs 74,000), and $2,450 (Rs 75,500).
Gold’s current performance is driven by a combination of central bank rate cuts, weaker-than-expected US economic data, and ongoing global central bank gold purchases. Traders should closely monitor the nonfarm payroll report and central bank policy changes, particularly from the US Federal Reserve. The potential for a rate cut by the Fed, combined with disappointing economic data, makes a strong case for continued strength in gold prices in the near term.
