Gold prices traded steadily above $2,400 on Tuesday as the yellow metal found some support on increased expectations for a larger interest rate cut from the Federal Reserve and escalating Middle East conflict.
Spot gold fell 0.15% to $2,406.45 per ounce, while gold futures for December delivery gained 0.10% to $2,446.80 per ounce.
The safe-haven precious metal dropped more than 1% to post a six-day low of $2,364.00 on Monday after lackluster readings of the world’s largest economy presented the risk of a recession, sparking a selloff across global risk-driven markets.
Heightened tensions in the Middle East curbed the losses as Israel prepares for a possible attack from Iran and Lebanon in response to the suspected Israeli assassinations of Palestine’s Hamas leader Ismail Haniyeh and Hezbollah’s top commander Fuad Shukr.
A US defense official stated on Monday that several US staff have been wounded in an alleged airstrike on an American military base in Iraq. The extent of the damage to the Al Asad airbase and the people behind the attack has yet to be known, according to the reports.
Gold also showed little reaction to the positive release of the Institute for Supply Management (ISM) US Services Purchasing Managers’ Index (PMI), which expanded to 51.4 in July from 48.8 in June.
Larger Fed Rate Cut Prospects Amid Economic Woes Buoys Gold
Gold has been shored up by solid demand for safe-haven assets as a string of weak economic data in the US, notably in the manufacturing sector and the labor market, signaled a quicker-than-expected loss of momentum for the no. 1 economy globally.
The prospect led to a major selloff in equities, Treasuries, and currencies, aiding in the rise of yellow metal. It also prompted traders to price in bets for a rate cut of 50 basis points (bps) by the Fed in September.
Fed Chair Jerome Powell has previously hinted at possibly trimming interest rates next month but clarified that they were not considering 50 bps for their first rate reduction.
CME Group Inc.’s FedWatch Tool now suggests a 93.3% probability of a 50 bps cut than a 25 bps reduction in September, and the central bank might see interest rates shedding 100 bps by the end of 2024.
The upward revision in odds was mainly due to the US consumer price index (CPI) dropping 0.1% month-over-month (MoM) in June, which placed the annual inflation rate at a three-year low of 3%.
