Gold prices edged lower on Tuesday, but remained near one-month highs hit on Friday, as traders weighed the possibility of a soft landing for the US economy and the timing of any future interest rate cuts by the Federal Reserve.
Spot gold was down 0.1% at $1,936.19 per ounce by 0607 GMT. U.S. gold futures fell 0.3% to $1,961.70 after a U.S. holiday on Monday.
“The market is still trying to figure out what the Fed is going to do,” said Harshal Barot, a senior consultant at Metals Focus. “If the Fed does not raise rates in September, then gold prices could move higher.”
Recent U.S. economic data has backed bets of a soft landing scenario, as worries about inflation and recession have somewhat eased. This has cemented expectations that the Fed might not have to raise interest rates further.
Gold, which yields no interest, tends to lose its attraction when interest rates rise. However, it can also be seen as a safe haven asset during times of economic uncertainty.
“If the US economy does indeed see a soft landing, there is potential for more downside in gold as some of the aggressive rate cut expectations in 2024 second half would be pared back,” Barot said.
Fed officials are expected to speak during the week, ahead of the Sept. 19-20 policy meeting.
According to the CME FedWatch tool, traders see a 93% chance of the Fed leaving rates unchanged at the meeting this month and about 60% chance that the rates would remain at current levels rest of the year.
“If the Fed does not signal any rate cuts in September, then gold prices could come under pressure,” Barot said.
However, if the Fed does signal that it is open to cutting rates in the future, then gold prices could rebound.
“Gold prices are expected to rebound with increased conviction of 2024 rate cuts,” NAB Commodities Research said in a note. “We see prices rising towards an average of $1,968 per ounce in the last quarter this year.”
Spot silver slipped 0.9% to $23.76 per ounce, platinum dipped 1% to $944.58 and palladium eased 0.2% to $1,218.78.
- A more detailed explanation of the factors that are affecting gold prices, such as the possibility of a soft landing for the US economy and the timing of any future interest rate cuts by the Fed.
- A different perspective on the potential impact of the Fed’s policy decisions on gold prices, from a commodities research firm.
- Updated prices for silver, platinum, and palladium.