On Friday (January 17) during the Asian session, spot gold fluctuated narrowly and is currently trading near 2713.55 USD/ounce. Gold prices surged on Thursday, reaching a high of 2724.61 USD/ounce, close to the more than two-month high of 2726.05 USD/ounce set on December 12, marking the third consecutive day of gains. The rise in gold prices is primarily driven by weak U.S. economic data and a decline in U.S. Treasury yields. Data released by the U.S. Department of Labor on Thursday showed that in the week ending January 11, the initial jobless claims increased to 217,000, higher than the market expectation of 210,000, indicating some weakness in the U.S. labor market.
Meanwhile, data from the U.S. Census Bureau showed that retail sales grew by 0.4% month-on-month in December, slightly below the market forecast of 0.5%, but the November growth was revised up to 0.8%. Additionally, U.S. import prices in December only slightly increased, rising for the third consecutive month, indicating a relatively mild inflation outlook in the U.S. The gold market positively reacted to this economic data, with Allegiance Gold's COO, Alex Ebkarian, stating: "The increase in initial jobless claims suggests a weakening labor market, and along with the decline in U.S. Treasury yields, gold's appeal has been enhanced."
Following the release of this economic data, the yield on the U.S. 10-year Treasury note trimmed gains and fell to over a one-week low. Federal Reserve Governor Waller's remarks further pressured Treasury yields. He stated that with softening U.S. economic data, the Fed might cut rates three to four times this year. Waller's comments have heightened market expectations for Fed rate cuts, with the U.S. interest rate futures market increasing the odds of rate cuts in 2025, and the Fed possibly starting to cut rates as early as the June meeting.
The rise in gold is also supported by the pullback in Treasury yields. The 10-year U.S. Treasury yield fell by 4.1 basis points on Thursday to 4.654%, touching its lowest point since January 6 at one point, reaching 4.587%. Robert Tipp, chief investment strategist at PGIM Fixed Income, noted that although the Fed might cut rates to support economic expansion, long-term bond yields might not decline significantly since the recent yield curve has trended towards normalization.
The U.S. dollar index fell by 0.15% on Thursday, reporting at 108.93. The intensifying expectations for Fed rate cuts have pressured the dollar. Analysts pointed out that although market sentiment is generally optimistic, caution remains amid Trump's impending inauguration. Trump's economic policies are anticipated to promote economic growth but could also bring more inflationary pressure.
Additionally, holdings in the world's largest gold ETF, SPDR Gold, have decreased, indicating a slight weakening of safe-haven demand for gold in the market. The ceasefire agreement in the Middle East, while temporarily diminishing gold's safe-haven appeal, still keeps gold as a focal point for investors due to the complexity of the situation.
The market will continue to monitor upcoming U.S. economic data releases, notably December's new housing starts, building permits, and industrial production, as well as China's fourth-quarter GDP performance. These data will further influence market expectations for the U.S. economy and Fed monetary policy trends, potentially bringing new directions for gold prices.
