Investors felt a slight tremor in the market today as gold prices slipped, marking a two-week low, after a morning trading session on Thursday. Both gold and silver reported significant downturns, effectively wiping out modest overnight gains. By midday, August gold prices had descended by $27.10, to touch $1,943.00, while September silver registered a $0.645 decrease, dropping to $24.325.
Recent U.S. economic data aligns more with the monetary policy hawks, suggesting an additional interest rate hike might be required to keep the economy from overheating and to quell burgeoning price inflation. Initial estimates for the U.S. gross domestic product (GDP) for Q2 reported an increase of 2.4% year-on-year, outstripping the anticipated 2.0% rise. The constituents of the GDP report also demonstrated robustness, offering further evidence of a strengthening economy.
U.S. durable goods orders recorded a 4.7% increase in June, far surpassing the 1.5% gain that was predicted. Meanwhile, weekly jobless claims in the U.S. were lower than expected. This unexpectedly positive data catalyzed a significant boost in the U.S. dollar index and nudged U.S. Treasury yields upward—both of these developments weigh negatively on precious metals markets.
The market has seemingly already absorbed the impact of Wednesday afternoon's 25 basis-point interest rate increase by the Federal Reserve. The accompanying remarks by Fed Chair Powell at his press conference were seen as neither excessively hawkish nor dovish, resulting in muted market reactions. However, there are divergent views among many Fed observers. Some believe that the central bank has concluded its rate-hike cycle, while others anticipate another rate increase in November. Overnight trading in Asian and European stock markets recorded mostly higher figures. At midday, U.S. stock indexes were also up, with indexes reaching or nearing annual highs amid a summertime rally.
In related news, the European Central Bank (ECB) marginally increased its main interest rate during its monetary policy meeting, as was expected. In the key outside markets, the U.S. dollar index was notably higher, reporting its most significant daily gain in several months. Concurrently, Nymex crude oil prices firmed up, trading around $80.00 a barrel. The benchmark 10-year U.S. Treasury note yield is currently around 3.9%.
Despite the short-term fall in gold prices, analysts predict a rally in the second half of 2023. The enduring theme of rising gold prices remains intact, underpinned by several factors. These include geopolitical tensions, global economic uncertainty, and inflation fears, all of which contribute to the safe-haven demand for gold.
Gold is a highly valuable asset that has maintained its value over centuries. Known as a reliable hedge against inflation, gold can protect wealth when fiat currencies lose value.
Buyers often turn to gold during periods of geopolitical and economic uncertainty. It serves as a safe haven due to its inherent value, providing a shield against potential losses in other volatile areas.
Buying gold can improve portfolio diversification. It tends to move inversely to stock markets, reducing the overall volatility and risk.
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