Gold prices surged by 1% on Monday after reaching a two-week low in the previous session, as investors reconsidered their expectations of U.S. interest rate cuts before a crucial inflation report due later in the week.
By 10:05 a.m. ET (1405 GMT), spot gold was up approximately 1% to $2,355.60 per ounce, recovering from its lowest point since May 9 at $2,325.19 on Friday.
Most U.S. markets were closed for the Memorial Day federal holiday.
Last week, bullion reached a record high of $2,449.89 but has since lost over $100.
“Gold has suffered from more hawkish perceived comments from Fed officials and better-than-expected U.S. economic data, with market participants again shifting back the timing of the first Fed rate cut,” noted UBS analyst Giovanni Staunovo.
Federal Reserve officials indicated that it might take longer than previously expected for inflation to drop to 2%, as shown in the minutes of their latest policy meeting.
Fed Governor Christopher Waller mentioned on Friday that a key underlying interest rate influencing monetary policy’s effectiveness might increase in the future after years of declines, although it is too early to confirm if this will occur.
While gold is traditionally seen as a hedge against inflation, higher rates increase the opportunity cost of holding this non-yielding asset.
Investors are now awaiting the April reading of the personal consumption expenditures (PCE) price index, the U.S. central bank’s preferred inflation measure, due on Friday.
Currently, traders are pricing in about a 62% chance that the Fed will cut rates in November, according to the CME FedWatch tool, compared to approximately a 63% chance on Friday.
“We expect gold prices to stay volatile, and price setbacks to be shallow, targeting gold prices to test new record highs later this year,” Staunovo added.
In other metals, spot silver jumped 3.6% to $31.42, having hit an 11-year high last week.
“Silver has outperformed gold this year, and this trend is likely to continue,” Staunovo said.
Platinum rose by 2.7% to $1,052.75, and palladium increased by 2.9% to $991.11, with both metals having been up 3% earlier in the session.