Gold prices rebounded on Friday after weaker-than-expected US business activity data raised expectations for Federal Reserve rate cuts, providing support for the precious metal.
In April, US business activity expanded at the slowest pace this year, with the S&P Global flash composite index showing the first contraction in six months. This slowdown was attributed to decreased demand, leading to the first decline in employment since 2020. The weaker-than-expected report bolstered the case for rate cuts, which would benefit non-interest bearing assets like gold.
Following the release of the data, bond yields and the dollar dipped, briefly lifting gold prices before retreating. Earlier in the day, gold had fallen by as much as 1.5% to below $2,300 on reduced geopolitical tensions in the Middle East.
Richard Grace, a senior currency analyst and international economist at ITC Markets, noted that the recent surge in gold prices likely prompted some tactical short-selling by traders.
Investors are now awaiting key US economic data releases, including the Fed’s preferred measure of inflation, which could offer further insights into the trajectory of monetary policy. The outcome of these data releases will be closely watched by market participants for indications of potential rate cuts by the Federal Reserve.
Despite recent fluctuations, gold remains up approximately 16% since mid-February, supported by several factors. Geopolitical risks, central bank buying, and demand from Chinese consumers have contributed to the metal’s gains. Notably, gold has continued to rise even in the face of a strengthening dollar and increasing Treasury yields, suggesting that the market anticipates a delay in the Fed’s planned policy pivot.
As of 11:07 a.m. in New York, spot gold was trading at $2,316.75 an ounce, marking a 0.5% decrease from previous levels. The Bloomberg Dollar Spot Index, which measures the performance of the US dollar against a basket of major currencies, was down 0.3%. Silver and platinum prices declined, while palladium recorded gains.
The recovery in gold prices on Friday was driven by weaker-than-expected US business activity data, which fueled expectations for Federal Reserve rate cuts. Despite initial losses, the precious metal rebounded, reflecting investors’ belief in its safe-haven appeal amidst uncertain economic conditions. As the trading week concludes, all eyes are on upcoming US economic data releases for further cues on gold’s direction.
