Gold price surges over 1% on Powell’s dovish guidance
- Gold prices jump over 1% after Fed Chair Powell hints at upcoming rate cuts, expressing confidence in inflation nearing the 2% target.
- The US Dollar Index (DXY) falls 0.82% to 100.68, as Powell’s remarks push traders to bet on a 50 bps rate cut in September.
- US 10-year Treasury yields drop five basis points to 3.80%, supporting bullion's rise, as market eyes the August Nonfarm Payrolls report for further guidance.
Gold price edges up over 1% on Friday as the Greenback and US Treasury bond yields dive following dovish remarks from Federal Reserve Chair Jerome Powell, who signaled he’s confident that inflation is edging towards the 2% goal and that rates should be cut. The XAU/USD trades at $2510 after bouncing off daily lows of $2484.
Bullion prices rose sharply as Powell said, “The time has come for policy to adjust. " He acknowledged that inflation is on the path to 2% and expressed that the Fed has shifted towards achieving the maximum employment mandate.
After those remarks, Gold reclaimed the $2500 figure, and the Greenback extended its losses. The US Dollar Index (DXY), which measures the dollar’s performance against a basket of six currencies, dropped 0.82% and traded at 100.68.
US Treasury bond yields immediately dropped, with the US 10-year benchmark note slumping five basis points to 3.80%. Traders increased 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 36.5%, up from 24% a day ago.
Now, with the Fed shifting towards the jobs market, the August Nonfarm Payrolls report would 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 big-size rate cut.
- After Powell’s speech, other Fed officials made notable comments. Philadelphia Fed President Patrick Harker stated that the Fed needs to lower rates methodically. Chicago Fed President Austan Goolsbee added that monetary policy is currently at its most restrictive level, and the Fed’s focus is now shifting toward achieving its employment mandate.
- Next week, the US economic docket will feature Durable Goods Orders, the Conference Board (CB) Consumer Confidence index, Initial Jobless Claims data for the week ending August 24, and the Fed’s favorite inflation gauge, the Core Personal Consumption Expenditures (PCE) Price Index.
- Additionally, Fed speakers led by Christopher Waller and Atlanta’s Fed President Raphael Bostic would cross the wires to prepare the ground ahead of the September meeting.
Technical outlook: Gold’s uptrend intact as buyers eye $2,550
Gold's uptrend remains intact and might extend if buyers lift prices above 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, a re-test of the previous all-time high (ATH) of $2,483 is on the cards. 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 $2,402.
Gold FAQs
Gold has played a key role in human’s history as it has been widely used as a store of value and medium of exchange. Currently, apart from its shine and usage for jewelry, the precious metal is widely seen as a safe-haven asset, meaning that it is considered a good investment during turbulent times. Gold is also widely seen as a hedge against inflation and against depreciating currencies as it doesn’t rely on any specific issuer or government.
Central banks are the biggest Gold holders. In their aim to support their currencies in turbulent times, central banks tend to diversify their reserves and buy Gold to improve the perceived strength of the economy and the currency. High Gold reserves can be a source of trust for a country’s solvency. Central banks added 1,136 tonnes of Gold worth around $70 billion to their reserves in 2022, according to data from the World Gold Council. This is the highest yearly purchase since records began. Central banks from emerging economies such as China, India and Turkey are quickly increasing their Gold reserves.
Gold has an inverse correlation with the US Dollar and US Treasuries, which are both major reserve and safe-haven assets. When the Dollar depreciates, Gold tends to rise, enabling investors and central banks to diversify their assets in turbulent times. Gold is also inversely correlated with risk assets. A rally in the stock market tends to weaken Gold price, while sell-offs in riskier markets tend to favor the precious metal.
The price can move due to a wide range of factors. Geopolitical instability or fears of a deep recession can quickly make Gold price escalate due to its safe-haven status. As a yield-less asset, Gold tends to rise with lower interest rates, while higher cost of money usually weighs down on the yellow metal. Still, most moves depend on how the US Dollar (USD) behaves as the asset is priced in dollars (XAU/USD). A strong Dollar tends to keep the price of Gold controlled, whereas a weaker Dollar is likely to push Gold prices up.