Gold prices surged further following the release of the latest US Labor Department report, which revealed a notable increase in weekly unemployment claims for the week ending May 4. With applications rising by 22,000 to a total of 231,000, well exceeding economists’ forecasts, concerns about an economic slowdown in the United States have intensified.
As of 5:20 PM ET, gold futures, based on the most active June contract, reached $2375, reflecting a gain of 1.48%. Opening at $2353.50, futures traded between an intraday high of $2385.30 and a low of $2352.
These recent economic reports, combined with the lackluster jobs report showing only 175,000 new positions added last month, suggest that the US economy may be facing headwinds.
Federal Reserve’s Monetary Policy Outlook
Federal Reserve officials are closely monitoring these economic indicators as they deliberate on the direction of monetary policy at the upcoming FOMC meeting in June. Presently, there is a near certainty, with a 96.5% probability, that the Federal Reserve will maintain its current benchmark interest rate (Fed funds rate) between 5.25% and 5.50%, according to the CME‘s FedWatch tool.
However, market expectations strongly suggest that the Federal Reserve will initiate its first rate cut at the September FOMC meeting. The CME’s FedWatch tool indicates only a 38.8% probability that the Federal Reserve will maintain its current benchmark interest rate after the September meeting.
Inflation Data: A Critical Factor
Given the Federal Reserve’s data-dependent approach, the timing of rate cuts could shift based on inflation trends. Therefore, next week’s CPI (consumer price index) report will be closely scrutinized, as it has the potential to impact gold prices.
Early forecasts from the Federal Reserve Bank of Cleveland’s “Inflation Nowcasting” indicator anticipate an increase in headline inflation of 0.41% month over month and an increase in core inflation (excluding volatile food and energy prices) of 0.31%.
Jim Wyckoff, Senior Market Analyst at Kitco News, emphasized, “If we get hot inflation or even warm inflation data next week, that’s going to throw cold water on any notions that the Fed might be able to cut interest rates as soon as September.”
The forthcoming CPI report will provide valuable insights into current inflationary pressures in the US, potentially influencing the timing and magnitude of rate cuts by the Federal Reserve this year, consequently impacting gold pricing.
