Gold extends rally amid U.S. inflation slowdown, anticipation of Federal Reserve rate cuts

Gold prices have continued their upward climb, trading near a one-month high of $2,695 per ounce, as an unexpected slowdown in U.S. inflation bolsters hopes for further Federal Reserve rate cuts this year, according to Bloomberg.

The core Consumer Price Index (CPI), excluding volatile food and energy costs, rose by just 0.2% in the latest report, down from a consistent 0.3% increase over the previous four months. This moderation has reignited optimism that policymakers may ease monetary policy sooner than expected.

The inflation report also prompted a decline in U.S. Treasury yields and a weaker dollar, enhancing gold’s appeal as a non-yielding asset. A softer dollar lowers the cost of gold for international buyers, further fueling demand.

Market shifts toward July rate cut expectations

Market sentiment has pivoted sharply, with swap traders now fully pricing in a Federal Reserve rate cut by July. This marks a significant shift from last week, when robust jobs data had pushed expectations for monetary easing into late 2025, around September or October.

Federal Reserve confidence and gold's resilience

Federal Reserve officials have expressed confidence that inflationary pressures are subsiding, though they caution that the fight against inflation is not over. Historically, monetary policy easing has been a critical driver behind gold’s record-breaking performance, and investors are closely monitoring developments that could influence the precious metal's trajectory.

As of 7:51 a.m. in Singapore, spot gold was steady at $2,695.06 per ounce, following a 0.7% gain in the previous session. Silver retained its impressive 2.5% rally from Wednesday, while platinum and palladium prices held steady. The Bloomberg Dollar Spot Index also remained stable.

Outlook for gold prices

Looking ahead, analysts predict a strong performance for gold in the coming years. For instance, InvestingHaven forecasts gold prices to potentially exceed $3,300 by 2026 and reach $5,000 by 2030. Similarly, Goldman Sachs anticipates gold climbing to $3,000 per troy ounce by the end of 2025.

Investors seeking exposure to gold can consider exchange-traded funds (ETFs) such as SPDR Gold Shares (GLD) or iShares Gold Trust (IAU), which track gold prices, or the VanEck Gold Miners ETF (GDX), which offers exposure to companies involved in gold mining.

The combination of cooling inflation, a dovish shift in Federal Reserve policy expectations, and ongoing global economic uncertainty continues to position gold as a highly attractive investment. With the potential for further rate cuts and geopolitical factors adding to volatility, gold remains a critical hedge for investors navigating an ever-changing market landscape.