Key Takeaway:
- Gold prices surged over 1% as Federal Reserve Chair Jerome Powell hinted at potential interest rate cuts, signaling optimism that inflation is nearing the Fed’s 2% target.
- This led to a weakening of the US Dollar and a decline in US Treasury yields, fueling speculation of a possible 50 basis point rate cut in September.
- The market’s focus now shifts to upcoming economic data, particularly the August Nonfarm Payrolls report, for further guidance on the Fed’s next move.
Gold prices saw a notable increase of over 1% after Federal Reserve Chair Jerome Powell hinted at potential interest rate cuts, expressing optimism that inflation is approaching the Fed’s 2% target. This development led to a decline in the US Dollar Index (DXY), which fell by 0.82% to 100.68, as market participants began anticipating a 50 basis point rate cut in September.
The drop in US Treasury yields also supported gold’s rise, with the 10-year Treasury yield falling five basis points to 3.80%. Market attention is now focused on the upcoming August Nonfarm Payrolls report for further indications on economic trends.
Gold prices edged up over 1% on Friday, trading at $2,510 after bouncing back from a daily low of $2,484. The rally in bullion prices followed Powell’s statement that the time has come for the Fed to adjust its policy. He highlighted that inflation is nearing the 2% target and that the focus is now on achieving maximum employment.
Powell’s remarks led to a recovery in gold prices, pushing them back above the $2,500 mark, while the US Dollar continued to weaken. The DXY, which tracks the dollar’s performance against six major currencies, dropped to 100.68.
In response to Powell’s comments, US Treasury bond yields also fell, with the 10-year benchmark note dropping five basis points to 3.80%. This further fueled speculation that the Fed might cut rates by 50 basis points at the September meeting. According to the CME FedWatch Tool, market participants had fully priced in a 25 basis point cut, with a 36.5% probability of a larger cut, up from 24% the previous day.
As the Fed shifts its focus to the labor market, the August Nonfarm Payrolls report will be crucial in determining the extent of the rate cut.
Market Outlook: Gold Price Momentum Builds Ahead of US Inflation Report
If upcoming US economic data continues to show weakness, the upward trend in gold prices is likely to persist, increasing the likelihood of a significant rate cut. Following Powell’s speech, other Fed officials echoed his sentiments. Philadelphia Fed President Patrick Harker emphasized the need for a gradual approach to lowering rates, while Chicago Fed President Austan Goolsbee noted that monetary policy is currently at its most restrictive and that the focus is now on achieving the employment mandate.
Next week’s US economic calendar includes key data such as Durable Goods Orders, the Conference Board’s Consumer Confidence Index, Initial Jobless Claims for the week ending August 24, and the Fed’s preferred inflation measure, the Core Personal Consumption Expenditures (PCE) Price Index. Additionally, speeches from Fed officials, including Christopher Waller and Atlanta Fed President Raphael Bostic, will provide further insights ahead of the September meeting.
Technical Analysis: Gold’s Uptrend Continues as Buyers Target $2,550
The uptrend in gold prices remains strong and could continue if prices break above the all-time high of $2,531. A successful breach of this level could open the path to $2,550, followed by $2,600. However, if gold closes below $2,500, a re-test of the previous all-time high of $2,483 could be expected. If this support level is breached, the next target would be the May 20 peak of $2,450, followed by the 50-day Simple Moving Average (SMA) at $2,402.
Conclusion:
Gold’s upward momentum is strong, driven by Powell’s dovish comments and the prospect of rate cuts. If upcoming US economic data remains weak, gold prices could continue to rise, potentially surpassing all-time highs. However, any failure to sustain above $2,500 could lead to a re-test of lower support levels.
