Gold prices surged as investors raised bets on the possibility that the US Federal Reserve (Fed) will continue to cut interest rates, after US inflation data showed moderate price pressure. At the same time, bottom-fishing buying appeared after a strong sell-off in the previous session, supporting the recovery momentum of the precious metal.
US inflation at the beginning of the year is assessed as quite moderate, easing concerns about a stronger rebound and strengthening expectations that the Fed will ease monetary policy in the near future. After the data was released, 10-year US Treasury bond yields fell, while the exchange rate swap market is estimated to have a 50% chance of a third interest rate cut in December.
This development helped gold prices at times increase by up to 2.5%, because a low interest rate environment is often beneficial for gold – an asset that does not generate yields.
Ms. Ewa Manthey, commodity strategist at ING Bank, said that the general context is still high volatility after a strong sell-off wave in the week for the precious metal group. However, the current upward momentum shows that the previous adjustment may have exceeded the necessary level, and the hunting for low-priced goods and position adjustment are creating support for the market.
Previously, gold had set a record above 5,595 USD/ounce at the end of January when a speculative wave pushed prices up sharply, before plunging sharply and falling below the 5,000 USD/ounce mark at the end of the month. Despite strong fluctuations, the precious metal is still forecast to end the week in green.
In Asia, the Chinese market will close next week due to the Lunar New Year holiday. Demand for precious metals in this country has increased sharply in recent months, contributing to the overall upward trend. However, Commerzbank analysts believe that the market may enter a phase of accumulation as Chinese investors - a force playing a major role in recent fluctuations, especially with silver - temporarily stop trading.
In this morning's trading session, spot gold prices increased by 2.2% to 5,041.52 USD/ounce. Silver increased by 2.5% to 77.16 USD/ounce, while platinum and palladium also simultaneously went up. The Bloomberg Dollar Spot index – a measure of the strength of the USD – was almost flat.
