- Gold has had a difficult week since expectations of a Fed rate cut started easing.
- Traders are pricing an 85% chance of a 25-bps rate cut in September.
- Traders will watch Powell’s tone on Friday to gauge the timing for the next rate cuts.
Gold recovered on Wednesday but remained near three-week lows hit on Tuesday. The rebound came as market participants awaited Fed minutes and the Jackson Hole symposium. However, the recent decline came amid a drop in expectations for Fed rate cuts. At the same time, a strong dollar has made gold expensive for foreign buyers.
Gold (Source: Bloomberg)
Gold has had a difficult week since expectations of a Fed rate cut started easing. On a larger scale, it has remained in a range due to the dollar’s rally since April. It might take a major catalyst like a rate cut to move prices again.
“Spot gold is likely to adhere to its sideways range until the Fed can resume its rate-cutting cycle, while the dollar’s month-to-date resilience is also making it harder for it to embark higher,” said Han Tan, chief market analyst at investment trading platform Nemo.Money.
Initially, last week’s CPI report had boosted hopes for a massive rate cut in September. However, this changed when producer prices came in well above estimates. At the moment, traders are pricing an 85% chance of a 25-bps rate cut in September. Moreover, there is no certainty about another rate cut this year.
Consequently, all focus is on the upcoming Jackson Hole symposium. At the same time, today’s FOMC minutes might contain clues about future rate cuts. During the last meeting, some policymakers were ready to start cutting interest rates.
“Markets will be looking out for further clues about the dissenting voices from the last FOMC meeting. Gold could even see a slight lift before Jackson Hole, should the FOMC minutes show that the dissenting voices at the previous Fed policy meeting were louder than envisioned,” Nemo Money’s Tan added.
However, the meeting came before key employment and inflation numbers, which have reshaped the outlook for Fed rate cuts. Nevertheless, if policymakers were ready to cut then, they might be more willing after a downbeat employment report and soft inflation numbers.
At the same time, traders will watch Powell’s tone on Friday to gauge the timing for the next rate cuts. Analysts believe he might refrain from giving a clear rate cut signal. Still, his tone might shift to a more dovish one, which would support gold prices.
