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Gold price rises over 1% on Powell’s dovish forecast

Posted on by Vaseline
Gold price rises over 1% on Powell’s dovish forecast

  • Gold prices rise more than 1% after Fed Chairman Powell hinted at impending rate cuts, signaling confidence that inflation is approaching the 2% target.
  • The US dollar index (DXY) fell 0.82% to 100.68 as Powell’s comments prompted traders to bet on a 50 basis point rate cut in September.
  • US 10-year Treasury yields fall five basis points to 3.80%, supporting precious metal gains as the market eyes the August Nonfarm Payrolls report for further clues.

Gold price rises over 1% on Friday as the greenback and US Treasury bond yields fall after dove-like comments from Federal Reserve Chair Jerome Powell, who indicated he is confident inflation is heading towards the 2% target and that rates should be cut. The XAU/USD is trading at $2510 after bouncing off daily lows of $2484.

Precious metals prices rose sharply as Powell said, “The time has come for policy to adjust.” He acknowledged that inflation is headed for 2% and signaled that the Fed has moved toward reaching its maximum employment mandate.

Following the comments, Gold reclaimed the $2,500 mark and the Greenback extended its losses. The US Dollar Index (DXY), which measures the dollar’s ​​performance against a basket of six currencies, fell 0.82% to close at 100.68.

US Treasury yields fell immediately, with the benchmark US 10-year note down five basis points to 3.80%. Traders raised bets that the Fed would cut rates by 50 bps at its September meeting.

The CME FedWatch Tool shows market participants had fully priced in a 25 basis point rate cut, while the probability of a larger cut stands at 36.5%, up from 24% a day ago.

As the Fed focuses more on the labor market, the August nonfarm payrolls report could be the final piece in determining the size of the cut.

Daily Market Movement Summary: Gold Price Rise Ahead of Next Week’s US Inflation Report

  • If US economic data continues to be negative, gold prices will continue to rise, fueling speculation of a major rate cut.
  • After Powell’s speech, other Fed officials made notable remarks. Philadelphia Fed President Patrick Harker said the Fed should cut rates methodically. Chicago Fed President Austan Goolsbee added that monetary policy is currently at its most restrictive level and that the Fed’s focus is now shifting to achieving its employment mandate.
  • Next week’s U.S. economic report includes durable goods orders, the Conference Board’s (CB) Consumer Confidence Index, initial jobless claims data for the week ended Aug. 24 and the Fed’s favorite inflation indicator, the Core Personal Consumption Expenditures (PCE) Price Index.
  • In addition, Fed speakers led by Christopher Waller and Atlanta Fed Chairman Raphael Bostic are said to be busy preparing for the September meeting.

Technical Outlook: Gold’s Uptrend Intact as Buyers Eye $2,550

Gold’s uptrend remains intact and may continue if buyers lift the price above the all-time high (ATH) of $2,531. A break of the latter barrier will expose the $2,550 barrier followed by the $2,600 barrier.

On the other hand, if gold manages a daily close below $2,500, a retest of the previous all-time high (ATH) of $2,483 is in the making. If this is surpassed, gold’s next support would be the May 20 high of $2,450, followed by the 50-day Simple Moving Average (SMA) at $2,402.

Frequently Asked Questions About Gold

Gold has played an important role in human history, as it has been widely used as a store of value and medium of exchange. Today, aside from its luster and use in jewelry, the precious metal is widely seen as a safe haven, meaning it is considered a good investment in turbulent times. Gold is also widely seen as a hedge against inflation and depreciating currencies, as it is not dependent on any specific issuer or government.

Central banks are the largest holders of gold. To support their currencies during turbulent times, central banks tend to diversify their reserves and buy gold to improve the perceived strength of the economy and its currency. High gold reserves can be a source of confidence in a country’s solvency. Central banks added 1,136 tons of gold worth about $70 billion to their reserves in 2022, according to data from the World Gold Council. This is the highest annual purchase since records began. Central banks from emerging economies such as China, India and Turkey are rapidly increasing their gold reserves.

Gold has an inverse correlation with the US dollar and US Treasuries, both of which are important reserve and safe haven assets. When the dollar depreciates, gold tends to rise, allowing investors and central banks to diversify their assets during turbulent times. Gold is also inversely correlated with risky assets. A rally in the stock market tends to weaken the price of gold, while sell-offs in riskier markets tend to favor the precious metal.

The price can change due to a wide range of factors. Geopolitical instability or fears of a deep recession can quickly send the price of gold soaring due to its safe-haven status. As a low-yielding asset, gold tends to rise at lower interest rates, while a higher cost of money tends to weigh on the yellow metal. However, most movements depend on how the US dollar (USD) behaves, since the asset is priced in dollars (XAU/USD). A strong dollar tends to keep the price of gold in check, while a weaker dollar is likely to push the gold price higher.

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