Gold Prices Rise to 1-Week High as Fed Cut Expectations Support

Investing.com - Gold prices rose to a one-week high on Thursday as markets dug in to expectations that the Federal Reserve will cut rates as soon as July, despite a small chorus of voices suggesting they may be too “optimistic”.

Gold futures for August delivery on the Comex division of the New York Mercantile Exchange, gained $2.40, or 0.2%, to $1,339.40 a troy ounce by 10:39 AM ET (14:39 GMT), just off its highest level since June 7.

Although the Fed is not expected to touch interest rates in its policy decision next week, analysts widely expect policymakers to shift to an easing bias in the face of weak inflation data and downside risks to the American economy due to trade tensions with China.

Fed funds futures put the chance of a cut at the following meeting in July at around 84%, a significant increase from 26% just one month ago.

A weaker-than-expected reading of job creation and various signs of muted inflation better have supported market conviction that the Fed will in fact ease policy.

But Investing.com financial markets analyst Pinchas Cohen warned that those expectations may have gone too far.

“Although the languishing inflation bolsters the case for a Fed cut, investors may have overplayed their hand, pricing in a 98% chance of a cut this year,” Cohen said.

The warning for caution coincides with that of Jan Hatzius, chief economist at Goldman Sachs (NYSE:GS), who recently held steady to his view that the Fed will in fact not move this year.

In a note released Monday, Hatzius was of the opinion that Fed Chairman Jerome Powell’s remarks that the central bank would “act as appropriate to sustain the expansion” was erroneously interpreted by the markets as a sign of an imminent rate reduction.

Instead, Hatzius believes Powell simply wished to highlight that the Fed is well aware of risks from the Sino-U.S. trade dispute and will emphasize that “they will respond to shocks as needed to attain their mandate”.

In other metals trading, silver futures rose 0.3% at $14.803 a troy ounce by 10:44 AM ET (14:44 GMT).

Palladium futures traded up 1.8% at $1,431.45 an ounce, while sister metal platinum lost 0.5% at $806.55.

In base metals, copper gained 0.2% to $2.658 a pound.

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