Gold gains momentum as dollar retreats and Fed rate hike pause looms

Gold markets steadied on Friday, heading towards a second week of gains as the dollar retreated, amid growing expectations that the Federal Reserve will pause its rate hike cycle next week.

On Thursday, the yellow metal recorded its best intraday gain in two weeks, fueled by a rise in weekly U.S. jobless claims, which heightened speculations of a potential Fed pause.

The greenback saw its largest decline since March, uplifting gold and other metal markets priced in US dollars.

This morning, spot gold remains flat at $1,962.83 an ounce, while gold futures registered a 0.1% increase, reaching $1,979.75 an ounce.

While the labor market weakness and a slight moderation in inflation may lead to a pause in the Fed’s rate hike cycle during its upcoming meeting, recent positive indicators related to personal consumption and nonfarm payrolls have left uncertainty lingering regarding the central bank’s future actions.

Market expectations, as indicated by Fed Fund futures prices, suggest a nearly 76% probability of a June pause, with a 24% chance of a 25 basis point hike.

Next week, the focus will also be on consumer inflation data, providing further clues on the Fed’s upcoming interest rate decisions.

The Fed’s actions and overall economic conditions have kept gold trading within a tight range since mid-May, following its drop below the significant $2,000 per ounce level.

Nevertheless, the deteriorating economic landscape in 2023 could potentially increase the demand for gold as a safe haven asset. A pause in the Fed’s rate hike cycle could weaken the dollar, further bolstering gold’s appeal.

Analysts at Citi and Commerzbank highlighted that a potential pause in the Federal Reserve’s rate hike cycle is expected to create demand for gold.