Gold prices surge to two week high on fed rate cut expectations; silver soars 3.4%

Gold prices rose by over 1% on Wednesday, reaching a nearly two-week high amid growing speculation of a potential interest rate cut by the Federal Reserve in September. This expectation has been fueled by recent U.S. economic data indicating a softening labor market.

As of 10:09 a.m. ET (1409 GMT), spot gold was up 1.4% at $2,362.32 per ounce, while U.S. gold futures climbed 1.7% to $2,372.40 per ounce.

Key Factors Driving the Gold Rally

Gold's price increase comes as first-time U.S. unemployment benefit claims rose last week, with the number of people receiving jobless benefits reaching its highest level in 2.5 years by the end of June. This points to a gradual cooling of the labor market. Additionally, a significant decline in orders led to a four-year low in U.S. services sector activity in June, indicating a potential slowdown in economic momentum as the second quarter concluded.

The release of this economic data has led to a weaker dollar, which fell to a two-week low, thereby making gold more attractive to investors holding other currencies. Concurrently, the yield on the benchmark 10-year U.S. Treasury note has decreased.

Market Sentiment and Fed Expectations

“Gold prices surged by more than ₹600, reaching ₹72,100, following Fed Chair Powell's speech. He hinted at the possibility of rate cuts if inflation continues to decrease and if economic and job data remain weak. This makes this week's unemployment data critical for predicting trends in both the dollar and gold,” stated Jateen Trivedi, VP Research Analyst in Commodity and Currency at LKP Securities.

The market currently sees a 68% chance that the Fed will cut interest rates in both September and December. Lower interest rates reduce the opportunity cost of holding non-yielding assets like gold, thus increasing their appeal.

Other Precious Metals

Spot silver saw a significant rise, climbing 3.4% to $30.52 per ounce. Platinum increased by 1.8% to $1,008.50, while palladium went up by 2.7% to $1,049 per ounce.

Investors are now focused on the minutes from the latest U.S. central bank policy meeting, set to be released later today, as well as the upcoming non-farm payrolls report on Friday, which may provide further clues on the Fed's rate decision.