Gold climbs on hopes of reaching neutral global interest rates

Gold prices rose in European trade on track for the first profit in four days on hopes global central banks have reached peak interest rates, with potential interest rate cuts in the first half of 2024.

Such hopes are overshadowing the recent spikes in dollar and US treasury yields after the Federal Reserve hinted at a 0.25% interest rate hike in November. 

Gold Prices Today

Gold prices rose 0.45% to $1,928 an ounce, with a session-low at $1,919, after losing 0.5% yesterday, the third loss in a row following strong US labor data, which showed unemployment claims fell to six-month lows. 

Global Interest Rates

Global central banks in the US, Switzerland, and the UK decided to pause policy tightening this week to assess the impact of recent decisions on the economy. 

Pausing rate hikes could very well be followed by steps to boost the economy, with potential interest rate cuts in 2024.

The Dollar

The dollar index rose 0.4% on Friday to a six-month high at 105.78 against a basket of major rivals, in turn keeping a lid on gold's gains.

US Yields 

US 10-year treasury yields rose 0.3% on Friday on track for the fourth profit in a row, scaling a 16-year peak at 4.509%, reducing demand on non-yielding assets.

The Fed 

As expected the Federal Reserve maintained interest rates unchanged at below 5.5%, already the highest since 2001.

It's a signal for the approaching end of the current policy tightening cycle.

The Fed stated the pause intends to give a longer chance for recent policy decisions to manifest their impact on US data, even as inflation remains stubbornly away from 2%.

The Federal Reserve's economic outlook report released yesterday included important modifications:

Growth is now revised to 2.1% this year from 1.0% in June forecasts, while 2024 growth forecasts are revised to 1.5%, and 2025 forecasts are revised to 1.8%.

Total inflation forecasts are revised to 3.3% this year, and 2.5% next year, and 2.2% in 2025.

Fed Chair Jerome Powell said Wednesday the process of controlling inflation is a long-term one, and interest rates are likely to remain high for an extended duration to bring inflation down.

He added that another interest rate hike won't impact the economy much but will help bring inflation towards the 2% medium target.

Jerome Powell expects inflation to reach the 2% target by the end of 2025, while remaining above 3% this year , adding the Fed is focused mainly on core inflation more than main inflation, which is influenced by volatile energy prices.

The SPDR 

Gold holdings at the SPDR Gold Trust rose 0.58 tonnes yesterday to a total of 878.83 tonnes away from January 2020 lows.