Gold Prices Surge Amid Fed Rate Cut Speculations
On Monday, July 15, gold prices rose as expectations for a Federal Reserve rate cut increased. During the New York session, gold prices surged to around $2,440 per ounce following a speech by Fed Chairman Jerome Powell. According to FXStreet analyst Christian Borjon Valencia, gold hit a multi-week high of $2,439 per ounce after Powell hinted at a potential rate cut before achieving the 2% inflation target.
Spot gold closed at $2,422.15 per ounce, up $12.67 or 0.53%.Powell's comments at the Economic Club of Washington, D.C., suggested that the Fed might not wait for inflation to hit 2% before cutting rates, citing the lagging impact of monetary policy. He emphasized that maintaining high rates for too long could excessively inhibit economic growth. Powell noted that the US economy and job market are in a balanced state, with inflation showing more progress in recent months.
As Powell spoke, the US dollar fell sharply, and spot gold peaked at $2,439.79 per ounce before giving back some gains. This marked Powell's first address since the June Consumer Price Index (CPI) report indicated cooling inflation.
The US Labor Department reported a 0.1% year-over-year decline in the CPI for June, the first drop since May 2020, against market expectations of a 0.1% increase. The unadjusted CPI rose 3.0% year-on-year in June, below the anticipated 3.1%, marking the lowest level since June last year. Additionally, the June quarterly core CPI recorded a monthly increase of 0.1%, below the expected 0.2%, and the annualized core CPI was 3.3%, below the expected 3.4%, the lowest since April 2021.
The Federal Reserve's next monetary policy meeting is set for July 30-31. While the market expects interest rates to remain unchanged, there is speculation of at least two rate cuts starting in September and continuing before the end of the year.
Marc Chandler, market strategist at Bannockburn Global Forex, noted the market's confidence in a September rate cut. Although Powell did not explicitly mention a rate cut, market participants have already factored it in. Chandler highlighted the shift in focus towards achieving a soft landing and avoiding a hard landing for the economy.
According to the CME's "Fed Watch" tool, traders see a 98% chance of a 25 basis point rate cut in September. A rate cut would lower the opportunity cost of holding gold, increasing its appeal to investors.
Jim Wyckoff, senior market analyst at Kitco Metals, predicts that gold prices will continue to move sideways and higher, potentially setting new record highs in the coming weeks. Spot gold reached an all-time high of $2,449.89 per ounce on May 20th.
Christian Borjon Valencia of FXStreet maintains a bullish outlook on gold prices, despite a slight pullback. He noted that gold remained above $2,400 per ounce, with bullish momentum. If gold surpasses $2,439 per ounce, it could test the year-to-date high of $2,450 per ounce. Breaching this level could lead to further gains, targeting $2,500 per ounce. Conversely, if gold falls below $2,400 per ounce, the next support level would be $2,392 per ounce, and a drop below this could see prices decline to $2,350 per ounce.
