Gold prices strengthened on Monday, buoyed by a decline in the dollar. Investors are keenly awaiting further clarity on trade policies between the U.S. and its trading partners, while also looking forward to the Federal Reserve‘s policy decision scheduled for later this week.
In Dubai, gold rates saw a modest rise, with 24-carat gold increasing AED3.50 to AED394.00, and 22-carat gold similarly gaining AED3.50 to AED365.00. Additionally, 21-carat gold climbed AED3.00 to AED349.75, while 18-carat gold ticked up AED3.00 to AED300.00.
Spot gold gained 0.6 percent to $3,258.53 an ounce as of 02:17 GMT. U.S. gold futures rose 0.7 percent to $3,266.24. The dollar was down 0.3 percent against its rivals, making gold more attractive for holders of other currencies.
“The U.S. Dollar is looking subdued ahead of the Fed meeting this week which is enabling gold to take a mild run higher,” Reuters reported, citing Tim Waterer, KCM Trade’s chief market analyst . “We may see gold continue to operate in the $3,200-$3,350 range ahead of the Fed meeting. However, any new headlines on the trade deal could cause volatility to tick up once again.”
The market’s attention will be centered on the U.S. central bank’s policy decision and speeches by several Fed officials this week, as traders seek insights into the future trajectory of monetary policy.
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Expectations for interest rate cuts
Traders are now anticipating 80 basis points of rate cuts this year, beginning in July, following a report from the U.S. Labor Department that indicated larger-than-expected job additions in April. Non-yielding gold serves as a hedge against global uncertainty and inflation, thriving particularly in a low-interest-rate environment.
The increasing likelihood that the Fed will reduce its interest rate in June enhances the appeal of non-yielding bullion. “The labor report leaves little doubt that the FOMC will keep rates on hold this week, and the bar for cutting is now even higher for June,” remarked Michael Feroli, head of U.S. economics at JPMorgan.
U.S. President Donald Trump remarked that he will not remove Jerome Powell as Fed Board Chairman before his term concludes in May 2026, while reiterating his call for the Fed to lower interest rates. On Sunday, Trump mentioned that the U.S. is engaging with multiple countries, including China, regarding trade deals, emphasizing that his primary goal with China is to secure a fair trade agreement.
The next Federal Open Market Committee meeting is scheduled for Wednesday, May 7, 2025, with market participants highly anticipating that interest rates will remain stable in the 4.25 percent to 4.50 percent range. As of now, the CME FedWatch Tool indicates a 94.8 percent probability of interest rates staying the same, while the likelihood of a 25-basis-point rate cut is just 5.2 percent.
Vijay Valecha, chief investment officer at Century Financial, shared with Economy Middle East his expectations regarding the upcoming Fed meeting. He noted, “After a total of 100 basis points of rate cuts since last September, the Fed has held rates steady since late last year.” Valecha highlighted the significant changes in the economic landscape due to President Trump’s protectionist policies, which have included tariffs impacting global trade. This, he explained, has led the Fed to raise its inflation forecasts for 2025 and 2026 while reducing growth expectations.
The markets have responded accordingly, with a shift towards a risk-off sentiment that has resulted in a correction in equities, a weakening U.S. dollar, and a historical rally in gold driven by safe-haven demand. Valecha remarked, “Despite Trump’s criticisms of the pace of rate cuts, it seems he will allow Powell to finish his term,” indicating a status quo regarding the Fed’s independence.
Challenging macroeconomic conditions
On the macroeconomic front, conditions appear challenging. The U.S. Consumer Confidence Index for April fell to 86, a level not seen since the pandemic in 2020. Additionally, the U.S. GDP contracted by 0.3 percent in Q1 2025, and the Chicago PMI for April came in lower than expected at 44.6. The Fed’s preferred measure for inflation, the Core PCE Price Index, remained unchanged month-on-month, contrary to expectations of a 0.1 percent increase.
The next Federal Open Market Committee meeting is scheduled for Wednesday, May 7, 2025, with market participants highly anticipating that interest rates will remain stable in the 4.25 percent to 4.50 percent range. As of now, the CME FedWatch Tool indicates a 94.8 percent probability of interest rates staying the same, while the likelihood of a 25-basis-point rate cut is just 5.2 percent.
Read more: Dubai gold prices gain AED4, global rates mark steepest weekly fall since February
U.S. labor market update
Nonfarm Payrolls (NFP) in the United States rose by 177K in April, according to the U.S. Bureau of Labor Statistics (BLS) on Friday. This figure follows the 185K increase (revised from 228K) observed in March and exceeds the market consensus of 130K. Additionally, the Unemployment Rate remained steady at 4.2 percent in April, as anticipated, while Average Hourly Earnings held firm at 3.8 percent year-over-year during the same period.
Labor market indicators also reflect a downturn, with JOLTS Job Openings for March dropping to 7.192 million, below expectations of 7.490 million. The ADP Nonfarm Employment for April increased by only 62,000, missing forecasts of 114,000, while initial jobless claims rose to 241,000, surpassing the predicted 224,000.
Looking ahead, Fed Fund futures currently reflect expectations of four rate cuts by the end of 2025, projecting a terminal rate around 3.31 percent. Notably, the recent Nonfarm Payrolls report showed an increase of 177,000, exceeding market predictions of 138,000, which has shifted expectations for the Fed’s policy path. Valecha noted that market participants now expect slightly more than three rate cuts, suggesting a change of 0.8 percent in interest rates by the end of 2025, bringing the terminal rate to about 3.51 percent.
While Trump’s administration appears to be pursuing renewed trade negotiations, particularly with China, the overall economic outlook remains uncertain. Valecha concluded, “The Fed is at a critical juncture, balancing rising inflation against slowing economic growth, which could affect the labor market.” For now, the data-dependent Fed is in a “wait and watch” mode, with rate cuts anticipated to resume in July.
Chinese markets are currently closed for the Labor Day holiday from May 1-5, resuming trade on Tuesday, May 6. The Chinese Commerce Ministry indicated that Beijing is contemplating an offer from the U.S. to hold talks regarding President Trump’s 145 percent tariffs. However, the two sides appear to remain significantly apart. Trump avoided directly answering whether trade deals would materialize this week, stating there ‘could’ be. This uncertainty surrounding tariffs boosts safe-haven flows, benefiting the precious metal.
Spot silver rose 0.1 percent to $31.99 an ounce, while platinum fell 0.4 percent to $956.09, and palladium eased 0.1 percent to $952.63.
