Gold Soars Amid OMFIF Report Despite Increasing U.S. Fed Rate Cut Bets

(RTTNews) - After ending yesterday's trading roughly flat, gold prices have surged on Wednesday as investors assessed a report stating that global central banks are more inclined towards investments into gold purchases rather than U.S. dollar. However, the ongoing bets on rate-hike by the U.S. Federal Reserve capped the gains.

Front Month Comex Gold for August month delivery has soared by $45.60 (or 1.13%) to $4,084.10 per troy ounce.

Front Month Comex Silver for August month delivery also surged by $0.552 (or 1.92%) to $60.255 per troy ounce.

In its latest survey involving nearly 90 institutions including central banks, public pension funds, and sovereign wealth funds, the Official Monetary and Financial Institutions Forum (OMFIF) revealed that more central banks around the world are planning to reduce their holdings on dollar and instead prefer to strengthen their gold reserves.

Owing to geopolitical risks and growing doubts about the stability of the international monetary system, the central banks intend to allocate more investments over the next couple of years for buying gold as an asset.

The London-based thinktank conducted the survey between March and May months and published it today. Of note, the participants collectively oversee around $10 trillion in assets.

Nearly 30% of the respondents intended to boost their gold allocation over the next couple of years.

In an interview with Kitco News, the Head of Research at OMFIF Andrea Correa stated that despite the cost of adding the yellow metal to reserves skyrocketing, reserve managers remain committed to purchases of the precious metal.

Meanwhile, the strength in U.S. dollar is pressuring gold from moving on the upside with the U.S. inflation remaining as the key concern.

At the European Central Bank's Forum on Central Banking, the U.S. Federal Reserve Chair Kevin Warsh did not signal on interest rate plans for July but remarked that inflation was too elevated. He stressed that prices are too high.

Recently, the Federal Open Market Committee indicated at raising the interest rates. Nearly half of the 18 members of the FOMC stressed on the need for a rate-hike this year while others preferred to continue to hold on the rates and to opt for a lengthy pause.

According to the recent data by the U.S. Bureau of Labor Statistics, job additions was 172,000 in May while unemployment rate stood at 4.30%. April month's job addition stood at an increased 179,000 (revised from the previous 115,000) and for the month of March, it stood at 214,000 from 185,000.

For three months in a row, the labor market has added jobs, diminishing the expectations for any Fed rate-cut in the near-term.

Today, the Challenger job cuts data revealed that U.S. based employers announced 45,849 job cuts in June, the lowest since December, down 53.00% from May and 4.00% lower than in the same month last year.

The U.S. Automatic Data Processing data revealed that private employers added 98,000 jobs in June, below 122,000 in May and forecasts of 113,000.

The Mortgage Bankers Association of America revealed that the Purchase Index in the U.S. increased to 170.60 on June 26 from 169.70 of the previous week.

After the reopening of the Strait of Hormuz following the signing of a Memorandum of Understanding on June 17 between the U.S. and Iran, shipping traffic is picking up gradually. However, energy experts are of the view that it may take a few more months for oil flow from the Arab region to return to pre-war levels as war-damaged production facilities across the gulf need extensive repair works.

Hence, analysts expect that oil-and-energy linked inflation could stay in the near-term and Fed would focus more on containing price rise.

Currently, investors are betting on a 33.70% chance of a quarter-basis-point interest rate-hike in the upcoming Fed's meeting on July 28-29 while the bets on rates being held at the current level stand at 66.30%, according to CME Group's FedWatch Tool.

The U.S. dollar index was last seen trading at 101.35, up by 0.11 (or 0.11%) today.