Gold prices were trading near a five-week high on Friday and were set for a third weekly gain after U.S. inflation data released earlier this week raised expectations that the Federal Reserve might cut interest rates further this year.
In the UAE, gold rates rose, with 24-carat gold gaining AED1.5 to AED328.75 and 22-carat gold rising AED1.25 to AED304.25. In addition, 21-carat gold and 18-carat gold edged up AED1 to AED294.5 and AED252.5, respectively.
Globally, spot gold declined 0.27 percent to $2,712.09 as of 6:12 GMT. Bullion has gained around 1 percent so far this week. Gold rose to its highest since December 12 after several sets of U.S. economic data pressured Treasury yields further.
Meanwhile, U.S. gold futures dipped 0.31 percent to $2,742.49.
The U.S. dollar index rose 0.12 percent to 109.09, making bullion less attractive for other currency holders.
Softer inflation boosts rate cut hopes
Gold prices received support this week from a weaker dollar after inflation data this week raised expectations for further policy easing. Fed Governor Christopher Waller said three or four rate cuts are still possible this year if U.S. economic data weakens further. Expectations for further Fed rate cuts grew after the release of December inflation data on Wednesday and Waller’s remarks on Thursday.
Investors now expect the U.S. central bank to cut rates twice this year, with a chance of the first cut taking place as early as May. The outlook for the Fed’s rate cuts this year led to a further decline in U.S. Treasury bond yields and kept the dollar close to a one-week low, lending additional support to gold prices.
A report by the U.S. commerce department showed that retail sales rose 0.4 percent in December and the previous month’s reading was also revised higher to show a 0.8 percent gain. In addition, the Philly Fed’s Manufacturing Index surpassed even the most optimistic estimates and surged to the highest level since April 2021, to 44.3 this month from a revised -10.9 in December.
Furthermore, the U.S. labor department reported that jobless claims, a key indicator of the health of the U.S. labor market, rose from 203,000 to 217,000 during the week ending January 10. The data signaled a slowdown in rate cuts this year, particularly amid worries that U.S. President-elect Donald Trump’s policies will stoke inflation, impacting the rise in gold prices.
Inflation concerns persist
With Trump set to begin his second term next week, the focus remains on his policies that analysts expect would fuel inflation. Trump previously pledged to impose big tariffs against America’s three biggest trading partners, Mexico, Canada, and China and also threatened a 100 percent tariff on ‘BRICS’ nations.
These policies could cause volatility in the market and raise trade tensions with the main trading partners, potentially raising demand for safe-haven gold. However, they could also prompt the Fed to take a more cautious stance on rate cuts, limiting an upside in gold prices.
Central bank officials said that the data released on Wednesday showed U.S. inflation was continuing, noting heightened uncertainty in the coming months as they await a first glimpse of the incoming Trump administration’s policies.
Elsewhere, Israeli Prime Minister Benjamin Netanyahu announced on Friday that a ceasefire deal that would pause 15 months of war had been reached, limiting safe-haven demand for gold which supported bullion’s remarkable rally last year.
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Other precious metals
The precious metals market witnessed a mixed movement on Friday as gold prices declined from their five-week high. Spot silver lost 0.24 percent to $30.70 per ounce while platinum gained 0.02 percent to $932.21 and palladium dipped 0.48 percent to $936.00.
