Global gold prices rose for the third consecutive session today, Thursday, amid investors’ anticipation of US inflation data scheduled for release later in the day to gain further insights into the Federal Reserve’s interest rate path. The dollar weakened, making the yellow metal priced in US currency more attractive to holders of other currencies.
Investors await the Consumer Price Index (CPI) report for June, scheduled for release at 15:30 Riyadh time, and the Producer Price Index (PPI) report on Friday. They anticipate that the data will increase optimism that the Federal Reserve could cut interest rates this year. Edward Mayer, an analyst at Marks, said any downside surprise in the CPI report could weaken the dollar and push gold prices higher towards the $2400 level. Federal Reserve Governor Lisa Cook said on Wednesday that inflation in the United States should continue to decline without another significant increase in the unemployment rate. “We will not see low levels of gold anymore like we did before. Another record high could be achieved this year if we face a geopolitical shock,” Mayer added. Gold is considered a hedge in the face of geopolitical disruptions, and the allure of the non-yielding metal tends to shine when interest rates are low.
Federal Reserve Statements Meanwhile, Federal Reserve Chairman Jerome Powell said on Wednesday that the US central bank will make decisions on interest rates “when and as” needed. On Tuesday, he told House members that “more good data” could bolster the case for interest rate cuts.
Powell emphasized that the US economy is heading towards a soft landing, adding, “There is a path to fully achieving price stability while keeping unemployment low. We are working on that and are focused on staying on that path.” Traders currently estimate a 46% chance that the Federal Reserve will cut interest rates by two notches by the end of the December meeting and a 73% chance of the first cut in September, according to the US interest rate monitoring tool available on Investing Saudi Arabia. Gold Settlement Yesterday Gold futures prices rose during trading yesterday, Wednesday, following Jerome Powell’s testimony to the House. At settlement, August gold futures rose 0.5% or $11.8 to $2379.7 per ounce, extending its gains from the previous session.
Gold and Dollar Now
Gold futures are now up 0.23% to $2385 per ounce.
Meanwhile, spot gold futures rose about 0.35% to $2379 per ounce.
On the other hand, the dollar index fell by about 0.05% to 104.670 points.
Other Metals Silver rose in spot trading by 0.4% to $30.94 per ounce, platinum rose 0.2% to $991.80, and palladium gained 0.6% to $992.30.
Fed Chairman: Reaching 2% Inflation Not a Condition for Rate Cut Biden Shock
Today witnessed Federal Reserve Chairman Jerome Powell completing his testimony before the US Congress, where he spoke more extensively about inflation and monetary policies. The Fed presented his testimony to the Senate Banking Committee yesterday and today to the House Committee, with the prepared speech before the two committees being identical. Speaking about the political life in America, which is waiting for a heated presidential election race between current President Biden and Donald Trump, the Republican candidate, Powell said that the Federal Reserve is working independently of any political purposes.
He added that he had not had any call or conversation with current President Joe Biden since 2022, over two years ago. Powell said today, Wednesday, that the Federal Reserve has a deliberate and good plan to gradually reduce its budget. Powell clarified that the current financial situation in the United States is not sustainable. Regarding his evaluation of the current interest rate and market interaction with it, Powell believes that current monetary policy is restrictive but not extremely so, and based on this, he sees that the average interest rate level is slightly higher than before.
Powell said he does not expect inflation to reach 2% to take its first step in cutting interest rates, explaining that he has full confidence in inflation falling but at a more leisurely pace than expected earlier. Powell said he does not have a specific inflation number when he will start the interest rate cut process. Jerome Powell commented on recent labor market data showing a decline in the average jobs added to the US market and an increase in the unemployment rate to 4.1%, saying that he now perceives a clear slowdown in the labor market sector and must be taken into account.
The Chairman of the Federal Reserve sees that the current average growth of the US economy by 2% is a good indicator when placing it with job data and inflation decline.
First Testimony Day-Key Points
Federal Reserve Chairman Jerome Powell did not lower expectations for a rate cut in September yesterday, but rather seemed to lay the foundation for a rate cut in the coming months after indicating that the recent slowdown in the labor market represents an increasingly important factor in the Federal Reserve’s rate decision-making process.
Powell said yesterday in his testimony before the Senate Banking Committee that “high inflation is not the only danger we face,” pointing out that “the labor market has significantly calmed down across many metrics.” For a long time, curbing high inflation was the primary danger, or perhaps the only danger facing the Federal Reserve, and its other primary policy focus, maximum employment, has not received much attention. For a legitimate reason, where jobs remained plentiful. But with signs of a slowdown in the labor market – the Federal Reserve has had to shift its focus and acknowledge that the danger has become twofold, as keeping policy too high for too long could have a significant impact on employment and the economy.
Powell said, “Restricting policy after it is too late or too little can weaken economic activity and employment without justification,” after indicating that labor market indicators “have returned to what they were on the eve of the pandemic.” The Federal Reserve’s acknowledgment that risks have become more binary suggests that the central bank’s risk outlook is undergoing a transformation… “In ways that may reasonably support a rate cut in September.” While Federal Reserve Chairman seems to be laying breadcrumbs for a rate cut in September, economic data remains impactful, ahead of Thursday’s inflation report, which could “support and underpin the evolved Federal Reserve assessment of the interest rate cut.” Others agree and point to the annual Jackson Hole Symposium in August as a potential opportunity for the Federal Reserve to confirm expectations of a rate cut in September.
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