Gold prices rise as rate cut odds drop

Gold prices edged higher on Wednesday, trading around the $2,380 per ounce level. If gold prices rise, resistance may be encountered near $2,400 per ounce, while if gold prices decline, support may be encountered near $2,320 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 remained steady on Wednesday and the dollar index hovered around 105.0. US treasury yields remained steady, with the US 10-year bond yielding approximately 4.29%.          

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. 

Fed chair Jerome Powell testified on the Semi-Annual Monetary Policy Report before the US Senate Banking Committee on Tuesday and Wednesday. Powell stated that inflationary pressures in the US are easing and warned that keeping rates at restrictive levels for too long could weaken the economy, hinting at a rate cut in September. 

Markets were anticipating a more dovish stance, however, and odds of a rate cut in September dropped from 75% to 70%, boosting gold prices. The uncertainty around Fed rate expectations is likely to continue in the coming months causing volatility in gold prices. 

China's central bank, the People’s Bank of China has halted gold purchases for the second consecutive month. The Bank of China has been buying gold over the last 18 months and the sudden absence of an important buyer has been driving gold prices down. 

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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