Gold prices jumped to new five-week highs on Thursday, climbing near $3,420 per troy ounce. The overall market continues to build strength in a bullish direction. This increase is driven by a myriad of macroeconomic factors that continue to affect both investor sentiment and currency valuations.
As the trading day wore on, gold’s rise gained steam, a clear sign that investor demand for the precious metal was heating up. Some analysts are attributing the recent spike in gold to a significant weakness in the US Dollar. During this decline, investors seeking a safe haven have flocked to gold, further increasing its attractiveness. Gold is in high demand, partly due to mixed US yields providing an overall supportive environment. This new development makes it even more attractive in today’s economy.
Market observers have turned their focus to the next US July Personal Consumption Expenditures (PCE) Price Index release. We’ll update this post with a link to that release when it goes out later today, ER Friday. Analysts will be looking at this leading index of economic activity with great care. It provides important information on both consumer spending and inflation trajectory, which may help inform the Federal Reserve’s future interest rate policy decisions.
If one believes the financial markets, odds for a cut by the Federal Reserve by September are increasing. This news has contributed greatly to a bullish sentiment towards gold. Investors now bet on loosening monetary policy, favorable to gold, a non-yielding asset by tradition. This perfect storm has been fueling gold with further momentum as it flirts with the psychological $3,420 level.
Alongside gold’s appreciation, the Japanese Yen has shown relative strength against the US Dollar. Following the release of Japan’s Tokyo Consumer Price Index (CPI) inflation data for August, the USD/JPY currency pair was in the red as expected. It lost strength and dropped below the 147.00 barrier. In fact, in the early Asian session on Friday, it dropped all the way down to about 146.85. This change is a testament to a regained belief in the Yen especially considering Japan’s strong economic signals.
Against that broader market backdrop is an accelerating narrative around the transformational potential of artificial intelligence (AI). Our industry is turning a corner from a “build it” phase to a “prove it” phase. Big Tech companies like Microsoft (microservices) and Alphabet/Google (ads) have collectively spent hundreds of billions of dollars developing AI-related initiatives but seen limited monetization thus far. This shift is indicative of a more risk-averse mindset taking hold of investors looking to measure the measurable outcomes of AI innovations.