Apr 2 2024: Gold prices surged to a record high on Monday, driven by ongoing safe-haven demand that overshadowed a rise in the dollar after signs of U.S. economic strength tempered early-rate cut expectations.
Spot gold saw a 0.9% jump to $2,249.95 per ounce, while gold futures expiring in June rose 0.8% to settle at $2,257.10, reaching as high as $2,286.35 intraday before the release of U.S. manufacturing data.
Despite an unexpected expansion in U.S. manufacturing activity pushing Treasury yields and the dollar higher, gold prices continued to climb. A stronger dollar typically makes gold more expensive and less attractive to foreign buyers, as gold is priced in dollars.
The ISM manufacturing purchasing managers’ Index rose unexpectedly to 50.3 from 47.8, indicating an expansion in manufacturing for the first time since September 2022. This led to a decrease in the odds of a June rate cut, now seen at 56% compared to 64% the previous week.
However, the positive economic data was balanced against the core PCE price index, the Fed’s preferred inflation gauge, which slowed more than anticipated in February. This suggested that recent inflation surprises might have been deviations from the recent deflation trend.
Morgan Stanley maintained its forecast of a rate cut in June, citing expectations of sustained disinflation towards the target due to lower core PCE prints from March to May.
Additionally, safe-haven sentiment for gold was bolstered by geopolitical tensions, particularly reports of Israeli strikes near Iran’s embassy in Syria’s capital on Monday, adding to global uncertainties.