Gold Price Uptrend Expected to Extend Above $2,500 as Fed Rate Cut Approaches
Gold Analyst Recognition: On Tuesday, gold prices gained traction amid fears that the Federal Reserve (Fed) may ease its policy in September. This optimism was driven by remarks from Fed Chief Jerome Powell in his Jackson Hole address, who claimed
“The time has come for policy to adjust” as well. Subsequently, gold (XAU/USD) traded at $2,516 per troy ounce on a 0.16% balance upwards!
The turning point was Powell’s comments last Friday. Rate-setter John Williams said he expected inflation was headed towards the Fed’s 2% goal but also sounded note on softening labor market.
Powell further said that greater employment risks would be significant and undesirable, a sign the possible cuts in interest rates from the Fed to address concerns about higher employment.
Joining Powell in his view, San Francisco Fed President Mary Dally underscored the need for a policy change. While signaling a near-certain September rate cut by the Fed, Daly also said it is unclear how big of a reduction in interest rates might occur.
If economic conditions worsen more than forecast, she said a still-more aggressive approach could then be needed.
According to economic data released on Friday, the point was further amplified. US Durable Goods Orders Print US Durable Goods Orders prevailed. The July Print surged impressively, with the recent report having reached a 9.
This acceleration beat the anticipated 4% addition as well as stood for the largest rise since May of in 2015 and suggests that, although momentum is reducing more than expected.
Gold got an additional tailwind as tensions in the Middle East continue to brew. The clashes between Israel and Hezbollah escalated over the weekend, to fears of a broader regional conflict. Should gold be vintage increase in the geopolitical threat category, as a safe haven alternative investment.
US Treasury yields rebounded slightly; the 10-year benchmark note increased one basis point to 3.81% on losses by stocks with investors fleeing equities and looking for a safe haven in US government debt instead.
At the same time, expectations over how much the Fed could cut rates were revised. CME Fed Watch Tool: 25bps cut fully priced in, traders pull back on a move as large as 50bp.
Down from 36.5% a week ago to just under 30%, the probability of an even bigger cut in two weeks is now about one-third less (-6%-points) than before Japanese PM Shinzo Abe announced last night he would begin re-diplomacy with Iran’s leaders at end this month.
The next instalment of August Nonfarm Payrolls will prove influential in shaping the ultimate extent to which a rate cut will be delivered by those guardian angels at the FOMC. It will offer additional details on the labor market, and help shape expectations at the Fed for September.
In summary Gold has seen support on expectations of a rate cut by the Fed in response to Powell’s comments and economic data suggesting that US still offer some level of resistance will note last.
Support also came from renewed concerns over the possibility of a conflict in the Middle East. With the focus turning to debates over how much rates should be slashed, Friday’s August Nonfarm Payrolls report could prove crucial in deciding what the end result will ultimately look like.
