On Thursday (September 12), spot gold surged nearly 2%, hitting a record high. Analysts pointed out that the euro/dollar strengthened after the European Central Bank's decision, which hit the US dollar index, and the US data showed that the economy was slowing, which strengthened the market's expectations of the Federal Reserve's interest rate cut next week, so the gold price soared.
Spot gold closed up $47.30, or 1.88%, at $2,558.58 per ounce on Thursday; the gold price hit a record high of $2,560.15 per ounce during the session.
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US data strengthens expectations of a Fed rate cut
FXStreet analyst Christian Borjon Valencia pointed out that after the number of initial jobless claims and producer inflation data in the United States further indicated that the Federal Reserve may cut interest rates next week, the price of gold soared to a record high above $2,550 per ounce. CME's "Fed Watch" tool shows that the probability of a 25 basis point rate cut by the Federal Reserve is 85%, which further boosts the attractiveness of gold in a low interest rate environment.
Data released by the U.S. Department of Labor on Thursday showed that the number of initial unemployment claims rose for the first time in three weeks, revealing signs of a gradual slowdown in the job market.
The report said that as of the week of September 7, the number of initial unemployment claims was 230,000, an increase of 2,000 from the previous reporting cycle, higher than the market expectation of 225,000.
"The labor market continues to be sluggish, and if the labor market deteriorates, this upcoming interest rate cut journey will continue for a long time."
Another data on Thursday showed that the U.S. producer price index (PPI) rose 1.7% year-on-year in August, lower than the expectation of 1.8%; while the core PPI rose 2.4% year-on-year, also lower than the expectation of 2.5%.
Valencia said that Thursday's data and Wednesday's consumer price index (CPI) consolidated the news of a 25 basis point rate cut, driving gold prices higher before the Fed meeting. Gold traders will focus on the consumer confidence survey released by the University of Michigan on Friday.
"We are heading towards a lower interest rate environment, so gold becomes more attractive," said Alex Ebkarian, chief operating officer of Allegiance Gold. "I think there may be more frequent rate cuts, not bigger rate cuts."
Because gold does not earn interest, lower interest rates can reduce the opportunity cost of holding gold and increase its investment appeal.
The ECB's decision hits the dollar index
Valencia said that in addition to the US data that heightened expectations for the Fed's first rate cut, the news of the ECB's 25 basis point rate cut pushed the euro/dollar rebound and weighed on the dollar.
The euro rose against the dollar on Thursday as the European Central Bank cut interest rates, but central bank President Lagarde downplayed expectations of another rate cut next month, saying the central bank would decide on its next policy move based on economic data.
The European Central Bank cut interest rates again on Thursday by 25 basis points due to slowing inflation and economic growth. After the ECB cut interest rates, the focus of the market shifted to the future monetary policy path of the euro zone.
"We will make decisions meeting by meeting. I will not commit to any specific date, and our policy path is not predetermined," Lagarde said at a press conference.
After the ECB released its policy statement, traders cut their ECB rate expectations, expecting another 36 basis points of rate cuts by the end of 2024.
"Looking ahead, the path of interest rates remains uncertain. While there is general agreement among the ECB Governing Council that policy constraints should be relaxed, there are still differences on the pace of rate cuts," said Yael Selfin, chief economist at KPMG.
The euro/dollar closed up 0.55% at 1.1071 on Thursday. The dollar index (DXY), which tracks the dollar against six major currencies, closed down 0.5% at 101.24 on Thursday.
"The combination of the ECB rate cut, a small increase in initial jobless claims and PPI is enough to push gold prices to a record high," said Ole Hansen, head of commodity strategy at Saxo Bank.
Hansen added that for the gold market, the start of a rate cut cycle could add support, regardless of the size of the cut. Growing market expectations that the Federal Reserve will soon start a rate-cutting cycle have supported the recent strength in gold prices. Strong buying from central banks and strong demand in the over-the-counter market have also driven gold's gains.
Steve Englander, head of global G10 foreign exchange research at Standard Chartered Bank, said: "Lagarde basically met market expectations for the ECB. Overall, there is some risk appetite in the market, and investors are buying currencies they previously sold, which usually indicates that risk appetite is recovering."
How to trade gold?
FXStreet analyst Christian Borjon Valencia pointed out that gold prices soared on Thursday, breaking through the previous historical high of $2,531/ounce and the $2,550/ounce mark, setting a new historical high. Although the negative correlation between gold prices and U.S. Treasury yields was broken on the day, the upward momentum of gold prices is still accelerating.
Valencia said that if gold prices continue to rise, the next resistance level will be psychological key levels such as $2,575/ounce, and then the $2,600/ounce mark.
Valencia added that for gold to pull back, sellers must first conquer $2,550/oz and then the high of $2,531/oz reached on August 20, in which case sellers will target $2,500/oz.
If gold weakens further, the next support level will be the low of $2,470/oz on August 22, followed by the high of $2,450/oz on May 20.
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2024-09-13
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