Gold prices dropped on Thursday after hitting an all-time high above $2,300 per ounce earlier in the session on the expectations for lower US interest rates this year. Spot gold was down 0.3% at $2,291.88 per ounce as of 10:04 am EDT, after hitting a record high of $2,304.09 on Wednesday. US gold futures fell 0.3% to $2,308.30.
“It’s a continuation of the idea… propagated by the Powell speech the other day that the Federal Reserve is getting set to cut rates,” Bart Melek, head of commodity strategies at TD Securities, told Reuters.
“That typically is a very accretive thing for gold, particularly since it looks like they (the Fed) are quite prepared to reduce interest rates at a time where inflation is going to be significantly above their 2% target,” he added.
In India, gold prices soared to a new lifetime high of Rs 69,908 per 10 gm on Multi Commodity Exchange (MCX). Gold futures contract on the MCX for June 2024 expiry opened at Rs 69,868 per 10 gm in morning trade, after which it soared to Rs 69,908 per 10 gm level following news of the precious metal scaling high of $2,323.70 per ounce in the international market.
Factors affecting gold prices this week were a sudden shift in expectation of US interest rate cut and rising demand for safe-haven assets.
Besides, geopolitical tensions in the Middle East and between Russia and Ukraine, along with an earthquake in Taiwan, led to increased investment in gold and other precious metals. Gold prices rose due to a weaker dollar, as the Federal Reserve hinted at potential interest rate cuts in 2024.
“The gold price has generally responded positively to improved odds of a Fed pivot from tightening to pausing/easing,” said Imaru Casanova, portfolio manager of gold and precious metals strategies at VanEck, in a note.
“Historically, gold has performed well during periods of high inflation. If inflation/inflation expectations stay above the Fed’s target, we believe this would be gold positive,” Casanova added.
Fed officials including U.S. central bank chief Jerome Powell on Wednesday continued focusing on the need for more debate and data before interest rates are cut, a move financial markets expect to occur in June.
Data showed the number of Americans filing new claims for unemployment benefits increased more than expected last week as labor market conditions gradually ease.
Focus now shifts to U.S. March non-farm payrolls due on Friday that could shed more light on the timing of the Fed’s first rate cut.
Strong central bank buying and safe-haven inflows amid growing geopolitical tensions have boosted demand for gold, helping to drive the price up more than 25% since October.
“It’s heavily overbought and needs to correct to blow some of the froth. Fed cuts are priced in, in my view,” said StoneX analyst Rhona O’Connell.
Elsewhere, spot silver fell 1.2% to $26.88 per ounce after hitting its highest since June 2021. Platinum rose 0.2% to $938.60 and palladium gained 1.4% to $1,028.50.
(With Reuters inputs)
