Breaking News: Gold Hovers Near Record Highs, Awaiting Two Key Events That Could Drive Prices
Gold prices rose globally during today’s Wednesday trading, fueled by increased inflows from Western investment funds and optimism regarding potential interest rate cuts in the United States. Investors are gearing up for the release of the minutes from the latest Federal Reserve meeting to gain insights into the timing and scale of these cuts.
Gold has gained nearly $470, or 22%, so far this year. Geopolitical tensions, uncertainty surrounding the upcoming U.S. presidential election, and anticipated rate cuts have pushed the precious metal to higher levels.
The surge in gold reflects market expectations of deeper rate cuts from the Federal Reserve. Traders have fully priced in a rate cut during the September meeting, with a 68% chance of a 25-basis point reduction. The dollar has hit its lowest level this year, while benchmark 10-year Treasury yields have also declined, making non-yielding bullion more attractive to investors.
Traders are now awaiting the minutes from the Federal Reserve’s July monetary policy meeting, set to be released later today, along with Fed Chair Jerome Powell’s speech on U.S. economic outlook at the Jackson Hole symposium on Friday.
While prices seem to be heading downward, bearish traders should remain cautious, as strong support levels persist. Buyers who are waiting for lower prices are likely to re-enter the market.
Gold at Tuesday’s Close
Gold prices extended their gains during Tuesday’s trading session, supported by a weaker dollar and growing investor confidence in a potential Federal Reserve rate cut in September.
At the close, gold futures for December delivery rose by 0.35%, or $9.3, to $2,550.6 per ounce, marking the sixth record high since the start of August.
Gold and Dollar Now
Spot gold increased by 0.1% to $2,517 per ounce after hitting an all-time high of $2,531.60 on Tuesday. Gold futures rose by 0.2% to $2,554.
On the other hand, the dollar index climbed 0.08% to 101.36 points.
Other Metals
Silver in spot trading rose by 0.3% to $29.52 per ounce, platinum increased by 0.6% to $951.55, while palladium fell by 0.1% to $924.60.
Warning from Jackson Hole: The Fed Chair Might Speak Without Saying Much!
This Friday, Federal Reserve Chair Jerome Powell will deliver a speech at the Jackson Hole symposium, the annual gathering of central bankers and academics hosted by the Kansas City Fed.
Three Key Points:
- BNY Mellon points out they are “fairly certain” that rate cuts will begin in September, and that Powell will at least acknowledge this.
BNY Mellon highlights that “the market is fully priced for the move.” Inflation data has bolstered confidence that it is on track towards the Fed’s 2% target, while the economy is slowing down. They believe the labor market is slightly softer than what the Fed might desire.
- While they still foresee only a 25-basis point cut in the federal funds rate on September 18th, they acknowledge the risks of a 50-basis point cut, with incoming data—especially the August employment report on September 6—being crucial for the decision.
They do not expect Powell to hint at or explicitly mention the size of the September cut. Instead, he is likely to continue emphasizing a “meeting-by-meeting” approach.
- Regarding the pace and frequency of upcoming cuts, BNY Mellon expects limited guidance. They note that if the decision between a 25 or 50-basis point cut hinges on the September 6 data, the November and December meetings will be equally data-dependent.
Powell is unlikely to commit to a specific policy path when the economy shows lagging macroeconomic momentum. Moreover, the September FOMC meeting will present the updated Summary of Economic Projections (the “dots”) and the committee’s collective outlook on key macroeconomic variables and interest rates.
BNY Mellon concludes that the risk on Friday is that Powell might not say “enough” to satisfy the cautious market stance. While not intentionally vague, Powell is expected to remain reasonably cautious, focusing on what he knows and avoiding speculation on what remains uncertain.
Dollar Falls to Yearly Lows Against Euro Amid Anticipation of U.S. Jobs Data
The U.S. dollar fell to its lowest levels this year against the euro today as traders await U.S. jobs data and Jerome Powell’s speech later this week.
The currency also dropped below the key ¥145 level and remained near its lowest point in over a year against the British pound, which it reached overnight.
U.S. bond yields, which have a significant impact on the dollar, fell to their lowest levels since August 5th, when yields dipped to a one-year low following unexpectedly weak monthly job figures that stoked recession fears.
The weak August 2nd payroll report led to increased volatility across asset classes and speculation about the Fed’s next moves.
Initially, the report made traders consider a 50-basis point rate cut in the Fed’s mid-September policy meeting, with an implied 71% chance according to the CME Group’s FedWatch tool. However, recent macroeconomic data shifted expectations, with a 72% chance for a quarter-point cut and 28% for a larger reduction.
Jerome Powell’s upcoming speech at the Jackson Hole symposium, hosted by the Kansas City Fed, is highly anticipated. Market participants are eager for clues on whether the Fed will cut rates next month and whether the cuts will continue in subsequent meetings.
The U.S. dollar index, which compares the dollar against the euro, sterling, yen, and other major currencies, fell to its lowest since January 2nd at 101.30 before recovering slightly to 101.48 as of 04:50 GMT. The index had previously dropped by 0.5% or more in each of the last three sessions.
The euro climbed to a high of $1.1132, its strongest since December 28th, before stabilizing at $1.1118. The pound was slightly weaker at $1.3027, just below Tuesday’s peak of $1.3054, the highest since July last year.
Against the yen, the dollar saw fluctuations, briefly dropping 0.21% to ¥144.945 before trading up 0.35% at ¥145.75.
Attention is also on Japan’s special parliamentary session on Friday, where politicians will review last month’s unexpected rate hike by the Bank of Japan and the central bank’s recent shift towards a more hawkish stance.
Bank of Japan Governor Kazuo Ueda is expected to testify, particularly after cautious comments by Deputy Governor Shinichi Uchida earlier this month helped stabilize markets.
An economist from SMBC Bank predicts that the dollar could weaken to ¥138 by the end of next year, although they believe the 2024 depreciation has already played out. They emphasize that the pace of the Fed’s rate cuts this year will be crucial for further movement in the dollar-yen pair.
As the Bank of Japan signals plans to continue raising rates to around 1% from the current 0.25%, significant volatility could follow. A Reuters poll today shows that over half of economists surveyed expect another rate hike from the Bank of Japan this year, with a leaning towards a December increase.
In other currency news, the Australian dollar hovered below its one-month high of $0.6749, last seen at $0.6747. The New Zealand dollar reached its highest since July 8th at $0.61585 earlier in the session before easing slightly to $0.61435.
