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Gold prices experienced a minor dip in Asian trading on Friday, but still held strong gains from the previous session, bolstered by softer-than-expected U.S. inflation data that fueled expectations of a September interest rate cut.
Gold’s Strong Performance:
The yellow metal surpassed the significant $2,400 an ounce level on Thursday, approaching a record high, benefiting from a weaker dollar and lower Treasury yields. These factors, coupled with the anticipation of potential rate cuts, have positioned gold for a strong weekly performance.
Market Drivers:
- Softer U.S. Inflation Data: The lower-than-expected U.S. consumer price index (CPI) data released on Thursday increased the likelihood of a rate cut in September, boosting gold’s appeal as a safe-haven asset.
- Dollar and Treasury Yield Declines: The dollar and Treasury yields fell in response to the CPI data, further supporting gold prices.
- Rate Cut Expectations: Traders are now pricing in an over 82% chance of a 25 basis point rate cut in September, up from 64% last week. Lower interest rates enhance gold’s attractiveness as a non-yielding asset.
Other Precious Metals and Copper:
While other precious metals retreated slightly on Friday, they are also expected to benefit from the prospect of lower interest rates. However, copper prices dipped due to a decline in Chinese imports, which raised concerns about weaker local demand and a sluggish economic recovery in the country.
China’s Trade Data:
China’s trade data revealed a surprising contraction in imports in June, despite a surge in the trade surplus to a near two-year high and stronger-than-expected export growth. However, increased trade tariffs on key Chinese exports, like electric vehicles, could potentially offset these positive trends.
Looking Ahead:
Market focus now shifts to the Third Plenum of the Chinese Communist Party next week, where investors will seek further cues on the Chinese economy and potential stimulus measures.
