Gold rallies, stocks fall as rate-cut hope evaporates

Gold prices reached new all-time highs on Monday, while stocks on Wall Street closed mixed as hopes that the Federal Reserve will soon drop interest rates faded due to a healthy US economy that negates the need for cutbacks anytime soon.

Chinese shares led a surge across parts of Asia overnight, buoyed by a broadly upbeat global economic outlook, while the dollar climbed after data showed the US manufacturing sector expanded in March for the first time since September 2022.

What had been a positive estimate of crucial US inflation last week quickly deteriorated as the market balanced the strength of the US economy against the necessity for urgent rate cuts.

The three government measures of US inflation - CPI, PPI, and PCE - show that improvement has plateaued, raising uncertainties about when and how much the Fed will cut, according to Kevin Flanagan, head of fixed income strategy at WisdomTree in New York.

"The markets are reevaluating what they assumed would be a fairly aggressive rate-cutting episode," Flanagan said.

"What will it look like, whether they travel in June or July? Right present, the data indicates that it will not be uniform.

Oil prices remained at five-month highs as markets anticipate tighter supply from OPEC+ cuts and attacks on Russian facilities, while Chinese manufacturing data supports a stronger demand picture.

The dollar index, which measures the US currency against six key peers, climbed 0.47%.

The MSCI index of global stocks declined 0.36%.

On Wall Street, the Dow Jones Industrial Average sank 0.6%, the S&P 500 declined 0.2%, and the Nasdaq Composite rose 0.11%.

European markets were closed on Monday, while most markets around the world were closed on Friday.

Fed Chair Jerome Powell stated on Friday that the inflation data issued that day "is what we were expecting" and that "you won't see us overreacting," implying that the US central bank is willing to continue in a wait-and-see posture.

Tim Ghriskey, senior portfolio strategist at Ingalls & Snyder in New York, believes the Fed does not want to repeat the 1970s, when it slashed too soon and inflation resurfaced.

"The possibility of a cut is being put back because Powell says in almost a gleeful tone that this is a terrific environment. Interest rates are higher than usual, yet not significantly higher.

"It's better to keep the cuts in your pocket."

Friday's announcement on personal consumption expenditures (PCE) price index data fueled expectations for looser US monetary policy, sending gold to a new record high.

The dollar and bond yields climbed, reducing gold's gains. Gold prices typically move inversely with interest rates because as rates rise, gold becomes less appealing.

Gold prices reached an all-time high of $2,265.49 per ounce earlier in the session. US gold futures closed 0.9% higher at $2,236.50 per ounce.

US Treasury yields climbed as stronger-than-expected manufacturing statistics threw doubt on the Fed's ability to deliver on the three interest rate decreases detailed in its forecast at its most recent policy meeting.

The yield on two-year Treasury notes, which measures interest rate expectations, increased by 9.2 basis points to 4.712%. The 10-year yield increased 12.3 basis points to 4.317%, having previously reached a two-week high of 4.337%.

Japanese stocks fell earlier, with the yen locked near levels that kept traders on edge for a currency intervention. The yen remained below 152 per dollar.

The Nikkei sank 1.4% at the closing, driven down by concerns of yen-buying intervention, which would harm exporter profit forecasts and returns for foreign investors.

Brent jumped 42 cents to settle at $87.42 per barrel, while US crude gained 54 cents to $83.71 per barrel.