Gold gains strength after Fed Chair Powell’s comments

Gold prices surged on Monday, rising above the $2,430 per ounce level after Fed Chair Jerome Powell’s dovish speech. If gold prices rise, resistance may be encountered near $2,450 per ounce, while if gold prices decline, support may be encountered near $2,350 per ounce. 

Gold prices are affected by central banks’ interest rates. A restrictive monetary policy hinders economic growth lowering the global economic outlook and putting pressure on gold prices. The US Federal Reserve kept interest rates unchanged at its policy meeting in June, within a target range of 5.25% to 5.50%, as expected. 

Gold prices surged on Monday after Fed Chair Jerome Powell’s dovish comments. At the Economic Club of Washington DC, Powell reiterated that the central bank is looking for “greater confidence” that disinflation is progressing. Powell stated that the Fed will not wait until inflation hits 2% to cut interest rates. 

Gold prices surged last week as US inflation surprised on the downside, boosting the odds of a Fed rate cut in September. Headline inflation cooled to 3.0% year-on-year in June from 3.3% in May against expectations of a 3.1% reading. 

Signs that inflationary pressures are easing might induce the Fed to start cutting interest rates in September. Rate cut expectations in September were catapulted above 90% after the release of the US inflation report, boosting gold prices. The uncertainty around Fed rate expectations will likely continue in the coming months causing volatility in gold prices. 

Gold prices have been typically directed by the dollar’s movement, as the competing gold typically loses appeal as an investment when the dollar rises. The dollar dipped after Fed Chair Powell’s comments on Monday and the dollar index dropped below 104.2 The dollar pared losses later in the day, however, as markets had time to analyze Powell’s speech and the dollar index rose back to 104.3. US treasury yields dipped on increased rate cut expectations, with the US 10-year bond yielding approximately 4.22%.             

Gold prices have experienced a meteoric rise in the past few months and are trading in overbought territory. Geopolitical tensions raise the appeal of safe-haven assets boosting gold prices. Concerns that the crisis in the Gaza area may spread to neighboring countries are raising demand for safe-haven assets keeping gold prices high.

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Written by:
Myrsini Giannouli

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