Gold Prices Surge Towards Record High on Powell’s Dovish Remarks
Gold prices soared on Monday, nearing their recent record high, fueled by strong expectations of an impending interest rate cut in September following dovish comments from Federal Reserve Chair Jerome Powell. Additionally, heightened safe-haven demand due to geopolitical tensions in the Middle East further contributed to the surge.
Spot gold rose by 0.2% to $2,514.73 per ounce at 11:41 a.m. ET (1541 GMT), inching closer to last week’s peak of $2,531.60. U.S. gold futures also saw an uptick of 0.2% to reach $2,550.30.
Analyst Insight: Jateen Trivedi, VP Research Analyst at LKP Securities, pointed out that the rally in gold prices was driven by Powell’s dovish speech, which reinforced market expectations of interest rate cuts commencing in September. Traders are factoring in cuts of at least 0.75 basis points by year-end. The magnitude, pace, and frequency of these rate cuts will hinge on upcoming economic data, including inflation and employment figures. Consequently, there is proactive pricing of these potential cuts in global markets, benefiting gold as a non-yielding asset.
What’s Influencing Gold Prices?
The dovish signals from Powell’s Friday speech, combined with safe-haven demand and escalating geopolitical tensions in the Middle East, are driving the surge in gold prices. Over the weekend, Hezbollah’s launch of numerous rockets and drones at Israel intensified the regional conflict.
In his Friday address, Powell hinted at forthcoming rate cuts, emphasizing concerns about further weakening in the job market. Market participants are now fully anticipating a rate reduction next month, with a 69.5% probability of a 25-basis-point cut and a 30.5% likelihood of a 50-bp cut, as indicated by the CME FedWatch tool. Gold, known as a hedge against geopolitical risks, typically performs well in a low-interest-rate environment.
Potential Increase in Gold Demand
Industry insiders anticipate a rise in gold demand in major consumer markets like India and China in the coming months.
Insight: Pranav Mer, Vice President at JM Financial Services Ltd., asserted that gold is poised to continue its positive trajectory, buoyed by mounting expectations of U.S. Fed rate cuts that have driven down the dollar and treasury yields. Moreover, the escalating tensions in the Middle East are further boosting safe-haven demand. The buying spree among central banks and ETF investors is projected to persist in the near future.
Other Precious Metals Performance
Spot silver remained steady at $29.81, reaching its highest level in over a month. Meanwhile, platinum inched up by 0.1% to $964.10, while palladium saw a slight decline of 0.5% to $958.01.
Additional Insight:
Considering the ongoing uncertainties in the global economy and geopolitical landscape, the appeal of gold as a safe-haven asset is expected to remain strong. Market participants are closely monitoring developments related to trade tensions, central bank policies, and geopolitical events, all of which could influence the future trajectory of gold prices. As investors seek stability and downside protection, the demand for gold is likely to remain robust in the foreseeable future.
