- Gold rises post-Powell's Jackson Hole comments on potential September policy easing.
- Powell cites inflation control, labor market concerns; Daly echoes rate cut expectations.
- US Durable Goods Orders jump 9.9% in July, showing economic strength; Middle East tensions boost Gold's appeal.
- US 10-year yields reach 3.81%; traders scale back on 50 bps cut bets, await Nonfarm Payrolls for more insights.
Gold extended its gains on Monday amid increasing bets that the US Federal Reserve (Fed) will begin to ease policy in September. This is a certainty following Fed Chair Jerome Powell's speech at Jackson Hole, when he said, “The time has come for policy to adjust." The XAU/USD trades at $2,516 per troy ounce, up by a minimal 0.16%.
Last Friday, Jerome Powell said that he was confident that inflation was on its way toward the Fed’s 2% goal and expressed worries about a weaker labor market, indicating that employment risks were skewed to the upside.
Powell gave the green light on interest rate cuts, adding that further cooling in the labor market is unwelcome.
Powell’s comments were echoed by San Francisco Fed President Mary Daly, who said, “The time to adjust policy is upon us. It's hard to imagine anything could derail a September rate cut.”
Daly added that it’s premature to know the size of interest rate cuts, yet stated that if the economy weakens “more than anticipated, we will need to be more aggressive.”
US Durable Goods Orders jumped from a -6.9% contraction in June to a 9.9% MoM expansion in July, exceeding the forecast for a 4% increase. This was the most significant gain since May 2020, hinting the economy is still resilient despite showing some signs of slowing down.
Bullion prices got a lifeline from rising tensions in the Middle East as the Israel-Hezbollah conflict escalated over the weekend. Fears that the conflict could broaden would be positive for the golden metal.
US Treasury bond yields had recovered as the US 10-year benchmark note climbed one basis point to 3.81%. Meanwhile, traders decreased their bets that the Fed would cut rates by 50 bps at the September meeting.
The CME FedWatch Tool shows that market participants had fully priced in a 25 bps cut, while odds for a larger size stand at 30%, down from 36.5 % last Friday.
Now, with the Fed shifting toward the jobs market, the August Nonfarm Payrolls report will be the last piece of the puzzle to determine the size of the cut.
Daily digest market movers: Gold price advances ahead of next week’s US inflation report
- If US economic data continues to be soft, the Gold price uptrend will remain, which would increase speculation about a bigger rate cut.
- On Tuesday, the US Conference Board will reveal Consumer Confidence for August, which is expected to improve from 100.3 to 100.6.
- Gross Domestic Product (GDP) figures for Q2 in the second estimate are expected to improve from 1.4% to 2.8%.
- On Friday, the Fed’s favorite inflation gauge, the Core Personal Consumption Expenditures (PCE) Price Index, will be revealed. It is expected to rise from 2.6% to 2.7% YoY.
Technical outlook: Gold’s uptrend is intact as buyers eye $2,550
Gold’s uptrend remains in play, yet buyers have failed to reclaim the all-time high (ATH) of $2,531. A breach of the latter will expose the $2,550 mark, followed by the $2,600 mark.
On the flip side, if Gold achieves a daily close below $2,500, this will sponsor a test of the previous all-time high (ATH) of $2,483. If surpassed, Gold’s next support would be the May 20 peak of $2,450, followed by the 50-day Simple Moving Average (SMA) at $2,406.
Interest rates FAQs
Interest rates are charged by financial institutions on loans to borrowers and are paid as interest to savers and depositors. They are influenced by base lending rates, which are set by central banks in response to changes in the economy. Central banks normally have a mandate to ensure price stability, which in most cases means targeting a core inflation rate of around 2%. If inflation falls below target the central bank may cut base lending rates, with a view to stimulating lending and boosting the economy. If inflation rises substantially above 2% it normally results in the central bank raising base lending rates in an attempt to lower inflation.
Higher interest rates generally help strengthen a country’s currency as they make it a more attractive place for global investors to park their money.
Higher interest rates overall weigh on the price of Gold because they increase the opportunity cost of holding Gold instead of investing in an interest-bearing asset or placing cash in the bank. If interest rates are high that usually pushes up the price of the US Dollar (USD), and since Gold is priced in Dollars, this has the effect of lowering the price of Gold.
The Fed funds rate is the overnight rate at which US banks lend to each other. It is the oft-quoted headline rate set by the Federal Reserve at its FOMC meetings. It is set as a range, for example 4.75%-5.00%, though the upper limit (in that case 5.00%) is the quoted figure. Market expectations for future Fed funds rate are tracked by the CME FedWatch tool, which shapes how many financial markets behave in anticipation of future Federal Reserve monetary policy decisions.
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