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Gold prices steady as rate cut speculation puts dollar at 2-mth low

Published 04/06/2024, 05:56
© Reuters.

Investing.com-- Gold prices fell slightly in Asian trade on Tuesday, but were sitting on some gains from the prior session as signs of a cooling U.S. economy ramped up expectations of rate cuts and drove the dollar to two-month lows. 

But the yellow metal still remained well below record highs hit in May, with upcoming labor market data, due later in the week, set to provide more cues on the path of U.S. interest rates. 

Spot gold fell 0.1% to $2,347.66 an ounce, while gold futures expiring in August fell 0.1% to $2,368.50 an ounce by 00:36 ET (04:36 GMT). 

Rate cut hopes grow on weak U.S. data, dollar sinks

Traders were seen pricing in a 52.1% chance for a 25 basis point rate cut in September, up from yesterday’s expectations of a 47% chance, the CME Fedwatch tool showed on Tuesday.

This shift in expectations came after purchasing managers index data showed on Monday that U.S. manufacturing activity shrank for a second consecutive month in May.

The PMI data, which came just days after a soft gross domestic product reading, pushed up bets that the U.S. economy was cooling, which could herald softer inflation and give the Federal Reserve more confidence to begin cutting interest rates. 

This notion saw the dollar sink to two-month lows on Monday. 

The Fed is set to meet next week and keep rates steady. But before that, key labor market data is due this week and is likely to factor into the central bank’s plans for rates.

Rate decisions by the European Central Bank and the Bank of Canada are due this week, with both central banks set to begin cutting interest rates. 

Lower rates are expected to benefit gold and other precious metals, given that the opportunity cost of investing in the sector increases in a high-rate environment.

Other precious metals steadied on Tuesday after advancing on Monday. Platinum futures fell 0.1% to $1,023.50 an ounce, while silver futures steadied at $30.785 an ounce.

Copper prices mixed as soft PMIs bode poorly 

Among industrial metals, copper prices were a mixed bag on Tuesday as they steadied after tumbling from record highs over the past week.

Benchmark copper futures on the London Metal Exchange rose 0.5% to $10,197.50 a tonne, while one-month copper futures fell 0.4% to $4.6645 a pound.

Weak PMI data from the U.S. and China ramped up concerns over slowing manufacturing activity across the globe, which could spell weaker demand for the red metal.

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