Gold Dips as Risk-On Sentiment and Easing Geopolitical Tensions Outweigh Rate Cut Hopes

Gold prices retreated in Asian trading on Monday, despite a weaker dollar and increased expectations of rate cuts. A surge in risk-driven assets, fueled by optimism over cooling U.S. inflation and potential easing of geopolitical tensions in the Middle East, overshadowed the allure of the yellow metal.

Spot gold declined 0.3% to $2,321.51 an ounce, while gold futures for August delivery fell 0.2% to $2,341.55 an ounce. This comes after gold hit a record high of about $2,450 an ounce last week.

Investor sentiment shifted towards riskier assets following the release of the PCE price index data, the Federal Reserve’s preferred inflation gauge, which eased as expected in April. This sparked speculation of a potential rate cut in September, further fueling the risk-on sentiment.

However, the upcoming nonfarm payrolls data and the Fed meeting next week could challenge this outlook. Moreover, the anticipated rate cuts by the European Central Bank and the Bank of Canada provided limited support to gold.

Other precious metals experienced mixed movements, with platinum futures rising 0.3% to $1,046.60 an ounce while silver futures fell 0.2% to $30.370 an ounce.

Meanwhile, copper prices struggled amid mixed signals from China, a major importer of the metal. Benchmark copper futures on the London Metal Exchange steadied at $10,093.50 a tonne, while one-month copper futures dropped 0.2% to $4.6160 a pound.

Both contracts have retreated from recent record highs as the speculative frenzy that fueled a copper rally in April and early May subsided. Additionally, conflicting economic data from China, with private PMI data showing manufacturing sector growth but government PMI data indicating contraction, raised doubts about demand for copper.

Overall, the gold market is navigating a complex landscape with competing forces at play. While the prospect of rate cuts and easing geopolitical tensions initially supported risk-on sentiment, the recent dip in gold prices suggests that these factors might not be enough to sustain its upward momentum. Investors will closely monitor upcoming economic data and central bank decisions to gauge the future direction of gold and other precious metals.