Gold futures rallied strongly today, driven by the European Central Bank's (ECB) historic rate cut, a weakening US dollar, and growing anticipation surrounding Friday's U.S. jobs report.
The ECB delivered its first-rate reduction in five years, slashing its deposit rate by 25 basis points to 3.75%. This move marked a pivotal shift in the central bank's monetary policy stance, as it became the first major central bank to ease rates since the global fight against inflation began. The decision was prompted by the eurozone's inflation rate falling from around 10% in 2022 to just above the ECB's 2% target, thanks to declining energy costs and improved supply chain conditions.
However, the ECB's path forward remains uncertain. While the rate cut was almost unanimous, a minority of conservative policymakers objected. President Christine Lagarde's comments during the press conference were deliberately ambiguous, reflecting the central bank's cautious approach. When asked about the likelihood of further rate cuts, Lagarde responded, "We are not pre-committing to a particular rate path."
The ECB's action, combined with a softer U.S. dollar, provided a significant boost to gold prices. As of 5:50 PM ET, the most active August gold futures contract traded at $2,395.20, up $19.70, while spot gold climbed $20.51, or 0.87%, to $2,375.55 per troy ounce.
Market participants are now eagerly awaiting Friday's U.S. jobs report, which could offer insights into the Federal Reserve's next move. Economists have varying projections, with Goldman Sachs forecasting 160,000 new jobs, Bank of America Global Research expecting 200,000, and Morgan Stanley predicting 180,000 new private payroll additions. The unemployment rate is anticipated to range between 3.8% and 3.9%.
The jobs report will be a crucial factor in the Fed's economic projections and the upcoming "dot plot" release at the conclusion of next week's Federal Open Market Committee (FOMC) meeting on Wednesday. The outcome will be closely scrutinized for clues on the central bank's future policy decisions, as it navigates the delicate balance between controlling inflation and supporting economic growth.
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