Gold prices have recently surged to historical levels, mainly capitalising on several factors that have come to the forefront, including its prestigious status as a trusted haven. In this article, we’ll delve into these elements and explore their impact on the precious metal’s bullish trajectory.
The Federal Reserve’s decisions, including interest rate adjustments and asset repurchasing policies, play a pivotal role in influencing the gold market.
Notably, the recent statements by Fed Chair Jerome Powell have further fuelled the upward trend in gold prices. The interplay between monetary policy and gold remains a critical factor.
The Federal Reserve’s recent statement highlighted its dual mandate; namely, price stability and maximum employment.
Powell’s assessment of risks associated with these mandates over the past year suggests a more balanced outlook. Economic growth is described as robust. Additionally, the Federal Reserve plans to slow down the pace of bond sales starting in June.
Chairman Powell dismissed the possibility of an imminent interest rate hike, emphasising the need for compelling evidence that their policy isn’t already sufficiently restrictive.
He also hinted at potential economic pathways that could allow for rate reductions, rather than increases. These statements have resonated positively in the markets, benefiting gold and other risk-linked assets.
“I think we need convincing evidence that our policy is not strict enough, and I do not think we have such evidence”, Powell added.
“I believe that there are economic paths through which we can reduce interest rates,” ruling out that the American economy is close to a stage of stagflation. He also stressed that “tight monetary policy is doing what it should do”, Powell continued.
These statements were a source of relief to the markets and continue to provide the markets with a dose of optimism that pushes the US dollar down in favour of gold, US stocks and other risk-linked assets.
Gold has been taking advantage of the weakness of the US dollar since the beginning of daily trading on Monday to achieve more gains after the US currency lost much of its value against major currencies due to the deterioration of US employment data issued last Friday.
Spot gold contracts rose to $2,333 per ounce, compared to the previous daily close, which recorded $2,308 per ounce. The precious metal fell to its lowest level on the first trading day of the new week at $2,308, compared to the lowest level of $2,341.
The US dollar has continued to decline since the beginning of Monday’s trading, affected by employment data that showed last Friday a decline in both job growth and wage growth in the United States.
The dollar index, which measures the performance of the US currency against a basket of major currencies, fell to 105.00 points compared to the last daily close, which recorded 105.03 points.
The index rose to its highest level on the current trading day at 105.20 points, compared to the lowest level, which recorded 104.87 points.
The NFP data indicated a rise of 175,000 jobs last April, compared to the previous reading, which recorded 315,000 jobs, which was higher than market expectations, which indicated a rise to 243,000 jobs.
Wage growth in the United States declined, which is constant in the annual reading of the average hourly earnings index, which recorded 3.9 per cent last April, compared to the previous reading, which recorded 4.1 per cent, which was less than expectations that indicated 4.00 per cent.
The US unemployment rate rose to 3.9 per cent last April compared to the previous reading of 3.8 per cent, indicating levels higher than market expectations of 3.8 per cent. (The author is the Chief Market Strategist at investment firm Noor Capital.)
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