Weak Dollar and Falling Yields Drive Gold Prices Higher Amid Modest Inflation
The US dollar continued to weaken following the release of the Personal Consumption Expenditures (PCE) Price Index data on Friday, which showed modest inflation growth in June. This data has increased expectations that the Federal Reserve might soon cut interest rates, leading to a drop in US Treasury bond yields. Consequently, the 10-year note yield fell to a nearly two-week low on Monday, further weakening the dollar and supporting XAG/USD.
The US Commerce Department reported a 0.1% increase in the PCE Price Index for June, after no change in May. Over the past year, the PCE Price Index rose by 2.5%, down from 2.6% in May, indicating moderating price pressures. The core PCE Price Index, excluding food and energy, also rose by 0.2% in June and remained steady at 2.6% year-over-year, matching consensus estimates.
Thus, the weakening dollar and falling Treasury yields, driven by modest inflation data, have boosted gold prices as investors seek safe-haven assets amid potential Federal Reserve rate cuts.
Middle East Tensions Drive Silver Demand, Global Equities Limit Gains
Increasing geopolitical tensions in the Middle East are boosting demand for silver as a safe-haven asset. The recent attack in the Golan Heights has raised concerns of a broader conflict between Israeli forces and Hezbollah, supporting silver prices. However, the positive sentiment in global equity markets has limited the appeal of traditional safe-haven assets like silver.
According to reports, Palestinians are fleeing the Bureij and Nuseirat refugee camps in Gaza due to new Israeli evacuation orders. The UNRWA reports that 86% of Gaza is under such orders. In retaliation for a rocket attack by Hezbollah that killed 12 people in Israel’s Golan Heights, Israel’s security cabinet has authorized further military actions. Israeli tanks have moved into Rafah and Khan Younis in southern Gaza, where fighting continues. The recent conflict has resulted in at least 66 Palestinian deaths and a total of 39,324 people killed in Gaza, with 90,830 wounded.
Therefore, while Middle East tensions increase demand for silver as a safe-haven asset, positive global equity markets cap silver’s price gains, limiting its upside potential.
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