Gold rises to two-week high on Fed rate cut expectations; silver up 3.4%

Gold prices surged over 1% to reach a nearly two-week peak, buoyed by growing expectations of a Federal Reserve interest rate cut in September following indications from recent U.S. data showing a softening labor market, on Wednesday.

Spot gold rose 1.4% to $2,362.32 per ounce by 10:09 a.m. ET (1409 GMT), while U.S. gold futures advanced 1.7% to $2,372.40.

“Gold prices traded very positively, up by more than ₹600 at ₹72,100, following Fed Chair Powell's speech, which hinted at openness to cutting rates if inflation data continues to decline and economic and job data remain poor. This makes this week's jobless and unemployment data particularly important as it will guide the trends for both the dollar and Gold,” said Jateen Trivedi, VP Research Analyst - Commodity and Currency, LKP Securities.

What's behind the surge in gold prices?

First-time applications for U.S. unemployment benefits rose last week, while the number of individuals receiving jobless benefits increased to its highest level in 2-1/2 years by the end of June, indicating a gradual cooling in the labor market.

A gauge of U.S. services sector activity declined to a four-year low in June, driven by a sharp decrease in orders, potentially signaling a slowdown in economic momentum at the close of the second quarter.

Following the release of U.S. economic data, the dollar fell to a two-week low, making gold more appealing to holders of other currencies, while the yield on the benchmark U.S. 10-year Treasury note decreased.

The market currently anticipates a 68% probability that the Fed will lower interest rates in both September and December. Reduced rates diminish the opportunity cost associated with holding non-yielding bullion.

Investors are now awaiting the release of minutes from the U.S. central bank's recent policy meeting later today, as well as the upcoming non-farm payrolls report on Friday, seeking further insights into potential U.S. rate cuts.

In other markets, spot silver surged by 3.4% to $30.52 per ounce, while platinum rose by 1.8% to $1,008.50 and palladium climbed by 2.7% to $1,049.