Interest rate cut expectations increased gold prices

Gains in gold were driven mainly by growing optimism about interest rate cuts by the Federal Reserve.

Weak consumer price index inflation data and dovish signals from the Fed have investors broadly positioned for a rate cut in September.

Investors appeared to be pricing in the possibility of a small 50 basis point cut, with an over 90% chance of a 25 basis point cut in September. According to the CME Fed Tracker, investors are no longer pricing in the possibility of the Fed remaining on hold.

Fed Chairman Jerome Powell said this week that the Fed is increasingly confident about a slowdown in inflation. Powell has previously signaled that the Federal Reserve does not need inflation to reach its 2% target to start lowering interest rates.

Although retail sales data released yesterday were slightly higher than expected, they supported the view that the US economy was slowing down.

Low interest rates bode well for gold and other precious metals as it offers a lower opportunity cost of investing in the sector.

The dollar continued to benefit precious metal prices, falling to its lowest level in the last month due to the expectation of low interest rates. Other precious metals also rose, following the weakening dollar.

Platinum rose 0.1% to $1,016.80, while silver rose 0.3% to $31,543.