Gold prices surged by more than 1% after Federal Reserve Chair Jerome Powell hinted at upcoming rate cuts, expressing confidence in inflation nearing the 2% target. This news caused the US Dollar Index (DXY) to fall by 0.82% to 100.68, as traders bet on a 50 bps rate cut in September. US 10-year Treasury yields also dropped, supporting the rise in bullion prices, as the market eagerly awaits the August Nonfarm Payrolls report for further guidance.
On Friday, the price of gold edged up as the Greenback and US Treasury bond yields plummeted following Powell’s dovish remarks. The XAU/USD pair traded at $2510 after bouncing off daily lows of $2484.
As Powell indicated that policy adjustments are necessary and that inflation is on track to reach 2%, gold prices saw a sharp increase. The Greenback extended its losses, with the DXY dropping by 0.82% to 100.68. US Treasury bond yields also declined, with the US 10-year benchmark note dropping by five basis points to 3.80%.
Market participants have already priced in a 25 bps rate cut, with the likelihood of a larger cut standing at 36.5%. The focus now shifts to the August Nonfarm Payrolls report to determine the size of the cut.
Daily Digest Market Movers: Gold Price Rises Ahead of US Inflation Report
- If US economic data continues to show weakness, the upward trend in gold prices may continue, leading to speculation about a significant rate cut.
- Following Powell’s speech, other Fed officials, including Philadelphia Fed President Patrick Harker and Chicago Fed President Austan Goolsbee, made comments supporting a methodical rate cut approach.
- Next week’s economic calendar includes key data releases such as Durable Goods Orders, Consumer Confidence index, Initial Jobless Claims, and the Core PCE Price Index.
- Fed speakers Christopher Waller and Raphael Bostic will also provide insights ahead of the September meeting.
Technical Outlook: Gold’s Uptrend Intact, Targets $2,550
The uptrend in gold remains strong, with potential for further gains if prices surpass the all-time high of $2,531. A breach of this level could lead to a test of $2,550, followed by $2,600.
On the downside, a daily close below $2,500 could result in a re-test of the previous all-time high of $2,483. Further support levels include $2,450 and the 50-day Simple Moving Average at $2,402.
Analysis:
The recent comments by Fed Chair Powell have sparked a surge in gold prices, with investors anticipating a rate cut in September. This could have significant implications for your investment portfolio, as lower interest rates typically boost the appeal of non-interest-bearing assets like gold. Keep an eye on upcoming economic data releases and Fed speakers for further clues on the future direction of gold prices. Consider adjusting your investment strategy to capitalize on potential opportunities in the gold market.