Gold surges on renewed Fed rate cut expectations

Gold prices surged above the $2,360 level on Wednesday as the dollar plummeted. If gold prices rise, resistance may be encountered near $2,340 per ounce, while if gold prices decline, support may be encountered near $2,290 per ounce. 

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 plummeted from 105.7 to 105.1 after Fed Chair Jerome Powell’s comments on Wednesday. The dollar recovered slightly later in the day and the dollar index rose to 105.3. US treasury yields dipped, with the US 10-year bond yielding 4.36%.       

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. 

The uncertainty around the US Fed rate outlook is causing volatility in gold prices. Fed chair Jerome Powell’s dovish comments boosted gold prices on Wednesday. Powell stated that significant progress has been made on disinflation, hinting at a rate cut in September. Renewed rate cut expectations boosted gold prices on Wednesday. Odds of a Fed rate cut in September rose from approximately 65% to 75% on Wednesday after Fed Chair Jerome Powell’s dovish comments. 

Powell added that more evidence of disinflation is required before the Fed can shift to a more dovish policy. Gold prices pared some gains late Wednesday, as markets had time to digest Powell’s statement. 

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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