Fed Rate Cut Expectations Boost Gold Prices Forecast
Wednesday’s U.S. Consumer Price Index (CPI) showed inflation rose just 0.1% in May, below the 0.2% forecast. On a year-over-year basis, CPI increased 2.5%. The softer-than-expected data pushed the dollar index (DXY) down 0.3% to a two-month low, making gold more attractive to foreign buyers.
Markets are now pricing in at least 50 basis points of rate cuts this year, with traders assigning a 68% probability of a cut by September. Declining Treasury yields added fuel to gold’s rally, with the 10-year yield falling to 4.387% and the 2-year at 3.926%. Lower yields reduce the opportunity cost of holding non-yielding assets like gold.
Geopolitical Risk and Trade Tensions Add Safe-Haven Appeal
Geopolitical risk remains a supportive factor. U.S. President Donald Trump said U.S. personnel were being repositioned in the Middle East due to growing tensions with Iran, reaffirming that Iran would not be allowed to develop nuclear weapons. In parallel, U.S.-China trade negotiations made headlines after Trump confirmed a finalized deal that includes China supplying rare earth materials and the U.S. easing restrictions on Chinese students.
The trade agreement helped stabilize market sentiment, but underlying risks remain. Comments from Goldman Sachs suggested that if inflation remains subdued or the job market weakens, the Fed may be forced to ease monetary policy sooner than planned.
All Eyes on PPI as Gold Tests $3400 Barrier
Traders now await U.S. Producer Price Index (PPI) data for confirmation of disinflation trends. A weaker-than-expected print could reinforce bets on Fed easing and push gold through key resistance.