What could US economy’s soft landing mean for gold prices?

Interest rate expectations are likely to continue driving the price of the precious metals. US economic data should be a key driver of the gold price as most economists and analysts suggest. At the time of writing, gold is trading up by +0.75 at $1960.38 per ounce.

The US economy grew by 2.4% on an annualized basis in the second quarter, and thus more sharply than expected. This means there is still little sign of the US Federal Reserve’s aggressive rate hikes, which in the market’s eyes increases the likelihood of a soft landing for the US economy.

This view was also boosted by the Fed, which abandoned its forecast of a US recession at its meeting on Wednesday, which saw it increase key rates by 25 bps as expected.

This is relevant to the gold price in the sense that rate cuts in the foreseeable future will be noticeably less likely if no recession is forthcoming. The market’s rate cut expectations for the coming year are at this point, however, quite supportive for the precious metal. Consequently, US economic data are likely to be watched very carefully over the coming days and weeks and should therefore be a key driver of the gold price.

Gold prices slipped more than 1% to a two-week low on Thursday, weighed down by a stronger dollar and an uptick in bond yields after better-than-expected US economic data, earlier, gold dropped 1.2% to $1,948.69 per ounce by 01:53 p.m. EDT (1753 GMT), its lowest since July 12. U.S. gold futures settled 1.2% lower to $1,945.70.

There was a one and two punch on gold with a better-than-expected initial claims numbers showing that the strength of the US labour market is resilient. Then also that surprise upside expectation in GDP data as well shows you that if there is any recession, it’s just not no one seeing it right now. So, it paves the way for higher for longer on interest rates.

Data showed the U.S. economy grew faster than expected in the second quarter as labor market resilience underpinned consumer spending.