Gold started March on a positive note, with prices rising to a two-month high by the end of the previous week due to strengthened expectations of a US interest rate cut by June. The metal's price is being propped up by anticipations of lower interest rates as inflation cools both in the United States and elsewhere.
Several data releases on Friday from the US indicated a weaker economy, reinforcing beliefs in potential Fed rate cuts throughout the summer. Weakness in US manufacturing and construction data coincided with a decrease in price pressures. The ISM Manufacturing PMI, which measures activity in the manufacturing sector, dropped to 47.8 in February, falling below expectations of 49.5. The slowing down of the economy was evident a day earlier with the Federal Reserve's preferred inflation tracker, the PCE index, registering a modest 2.8% for February, in line with analyst predictions.
The market is currently factoring in a 74% likelihood of a rate cut in June, up from 65% the previous week. Gold's price is closely tied to interest rates. Lower interest rates make the non-interest-bearing metal more appealing, typically resulting in higher gold prices. Moreover, the safe haven appeal of gold shouldn't be discounted, particularly amid ongoing major conflicts in Eastern Europe and the Middle East.
The price of gold (XAU/USD) turned positive for the fifth consecutive day on Tuesday, reaching a fresh three-month peak, hovering around the $2,130 mark.
There hasn't been a corresponding decline in US yields or the dollar to justify such an increase, but there has been significant gold purchasing by central banks worldwide, potentially influencing the paper price of gold.
With that said, attention will remain focused on Federal Reserve Chair Jerome Powell's two-day congressional testimony beginning Wednesday. Additionally, US macroeconomic data scheduled at the start of each month, including the highly anticipated monthly employment data or Nonfarm Payrolls (NFP) report on Friday, will impact the US Dollar (USD) and provide renewed momentum for the metal.
