Cassiar Gold Corp. (TSXV: GLDC, OTCQX: CGLCF)
Revitalizing the Cassiar Gold District in British Columbia, Canada
Gold prices rose 1 per cent on Friday as expectations of a September interest rate cut by the Federal Reserve led to a drop in US Treasury yields, after data released by the US Commerce Department’s Bureau of Economic Analysis on Friday (26 July) showed that the US personal consumption expenditure (PCE) price index grew at a slightly higher than expected annual rate on an adjusted basis.
Spot gold prices rose 1 per cent to $2,388.05 an ounce, while the price of the gold futures contract for August delivery closed 1.2 per cent higher at $2,381.
Fawad Razaqzada, market analyst at Forex.com, said the economic data suggests that inflationary pressures and economic activity are weakening, paving the way for the Federal Reserve to cut interest rates twice this year.
In addition, the first advance estimate released by the U.S. Commerce Department a day before showed that real U.S. gross domestic product (GDP) grew at an annualised rate of 2.8% in the second quarter of this year, much higher than the expected 2%, suggesting that the economy has remained resilient despite interest rates reaching their highest level in 23 years.
CME’s FedWatch tool now predicts a 100% chance of a Fed rate cut in September, with an 87.7% chance of a 25 basis point cut.
Therefore, is a rate cut necessarily good for gold? From the historical experience, the price of gold after the rate cut may rise, may also fall, depending on several factors, including whether inflation is back down. If the level of inflation and nominal interest rates fall back together, the price of gold is also difficult to rise.
Secondly, if Europe steps into the rate-cutting cycle before the Fed, it is expected to support the US dollar index, which in turn will lead to pressure on gold prices.
In addition, if the U.S. economic growth picks up after rate cuts, meaning that the real interest rate is higher, which is also unfavourable to the performance of gold prices. The good news is that gold prices may continue to be supported at higher levels as the US presidential election and geopolitical risks in the second half of the year push global central banks to continue to accelerate their gold buying.
Meanwhile, silver, platinum and palladium prices fell for the third consecutive week. Spot silver prices fell 0.6 per cent today to $27.80 an ounce, platinum prices were down 0.2 per cent at $930.86 and palladium was down 1.1 per cent at $896.50.
