Gold prices soared to record highs above $2,490 per ounce on Friday, marking a significant surge of over 1.7% by 9:50 a.m. EST. This rally was driven by a combination of factors, including a weakening U.S. dollar and declining Treasury yields. The U.S. dollar index (DXY), as tracked by the Invesco DB USD Index Bullish Fund ETF UUP, dropped 0.4%. The greenback’s weakness was particularly pronounced against the Japanese yen, where it fell nearly 1%.
Meanwhile, Treasury yields softened, with the 2-year yield decreasing by 4 basis points to 4.05%. The 10-year yield also edged down by 2 basis points to 3.89%. These declines in yields suggest a reduced expectation of future interest rate hikes. Gold’s surge this year, with a 21% gain year-to-date, reflects growing anticipation that the Federal Reserve will begin lowering interest rates. This trend positions gold for its strongest annual performance since 2020 when it gained 25%.
The rise in gold prices is further supported by the recent deceleration in inflation. Inflation data for both producer and consumer prices in July slightly undershot expectations, reinforcing the disinflationary trend. Producer prices rose just 0.1% month-over-month in July, down from 0.2% in June, and fell short of the forecasted 0.2% increase. On an annual basis, producer inflation slowed to 2.2%, down from 2.7% in June. Consumer inflation also decelerated for the fourth consecutive month, with the annual inflation rate dropping to 2.9% in July. This marks the lowest rate since March 2021, compared to 3% in June. Core inflation, which excludes volatile food and energy prices, also eased to 3.2% from 3.3% in June, meeting expectations.
Traders have slightly adjusted their expectations for a large 50-basis-point Fed rate cut in September, now leaning towards a smaller 25-basis-point cut. This shift in sentiment reflects the disinflationary trend and a 73% probability priced in for a smaller cut. Looking ahead to the end of the year, markets are pricing in a total of 80 basis points in cuts, suggesting two additional 25-basis-point reductions at the Fed’s November and December meetings.
Gold ETFs, such as the SPDR Gold Trust GLD, have experienced significant inflows, indicating strong investor demand. July saw the strongest monthly inflows since April 2022, with global gold ETFs attracting $3.7 billion, marking the third consecutive month of inflows. This influx is largely driven by North American funds, which saw $2 billion in inflows, more than offsetting minor outflows in May and June. The World Gold Council (WGC) attributes these inflows to increased safe-haven demand, particularly around the recent political events involving Trump and Biden.
As the market awaits the Fed’s anticipated rate cuts in September, all eyes are now on the Jackson Hole Symposium, scheduled for August 22-24. Historically, gold has demonstrated strength following the Jackson Hole Symposium, as highlighted by the WGC. However, this strength is often followed by a pullback as bond yields tend to rise in the subsequent weeks.
The gold mining sector also saw positive movement on Friday, with several companies experiencing significant gains. Top performers included SSR Mining Inc. (SSRM), Emerald Resources NL (EMR), K92 Mining Inc. (KNT), Equinox Gold Corp. (EQX), and Coeur Mining, Inc. (CDE), all posting impressive one-day percentage changes. Even industry heavyweights such as Newmont Corp. (NEM) and Barrick Gold Corp. (GOLD) saw gains of 0.8% and 2.3%, respectively.
