Gold Prices Bolstered by U.S. Interest Rate Cut Hopes
Gold prices were supported by hopes for a cut in U.S. interest rates later this year, due to signs of cooling U.S. inflation, whilst a recent softening of the dollar against the pound has meant that gold may be cheaper to buy for UK-based savers.
Gold was up slightly in the second week of June, as unchanged U.S. consumer price data in May, as well as a fall in producer prices, boosted prospects for a U.S. rate cut later this year. A share selloff in Europe on French political uncertainty also underpinned the yellow metal.
A climate of lower U.S. rates can support prices of non-yielding gold relative to alternative assets.
The latest Kitco News Weekly Gold Survey said most market experts see a more bullish trend for gold in the third week of June.
“Gold snapped a three-week decline, encouraged by political uncertainty in Europe, and a sharp drop in interest rates,” Kitco News quoted Marc Chandler, Managing Director at Bannockburn Global Forex, as saying.
He was referring to political uncertainty in France after President Emmanuel Macron called snap elections, and to recent rate cuts by the European Central Bank, Canada, Sweden and Switzerland.
Currency Dynamics and Gold Affordability
The pound has strengthened recently against some other currencies, including the dollar, in which gold is denominated, and the euro.
The signals of weaker U.S. inflation prompted a selloff in the dollar in the second week of June, while the snap call for an election in France after victories for the far right in European parliamentary elections, dragged on the euro.
The pound has outperformed the dollar so far this year, potentially making purchases of gold more affordable for UK-based savers.
Analysts are pricing in at least one interest rate cut by the Bank of England this year, although a June 2024 rate cut is seen as unlikely, but UK rates are expected to remain higher than euro zone rates, potentially supporting the pound against the euro.
The pound has reacted little to widely held expectations that the opposition Labour Party will comfortably win UK general elections in July.
The main focus for gold prices in the near term is expected to be prospects for a rate cut in the United States, with gold savers expected to keep a close eye on trends in inflation in the world’s largest economy.
If the pound remains relatively strong to the dollar in coming weeks, gold purchases by UK-based savers could be more affordable.
