- Gold futures ease below $3,800 after touching record highs near $3,825.
- Dollar steadies as Powell tempers expectations of rapid Fed cuts.
- Safe-haven demand persists due to geopolitical risks and expectations of Fed easing.
Gold futures modestly retreated on Wednesday after posting fresh all-time highs near $3,825 in the previous trading session. The gold’s pullback aligns with a stronger greenback supported by Fed Chair Powell’s cautious commentary on future monetary policy.
Powell stressed that the Fed is facing a dual challenge of addressing the risk of sticky inflation while protecting the labor market. He signaled that the interest rate cuts will be more gradual than the markets had anticipated. This tempered the immediate dovish bets, but investors still expect two more rate cuts this year, in October and December. According to the CME FedWatch tool, the rate cut probabilities are at 94% and 77%, respectively.
Despite the pause in bullish momentum, demand for gold remains underpinned by safe-haven flows, supported by geopolitical tensions and equity market volatility. The S&P 500 lost 0.6% on Tuesday, marking the sharpest decline in three weeks and indicating defensive demand. Meanwhile, the heightened geopolitical risks, including NATO’s warning to Russia and President Trump’s renewed rhetoric over Ukraine, are increasing flows to gold.
Economic strategists highlight that the long-term strength for gold is anchored by reduced US funding costs, geopolitical uncertainty, and investors’ cautiousness over the Fed’s independence. Consolidation at current levels is likely, with a probability of further gains if macroeconomic conditions deteriorate further.
Key Events Ahead
- US PCE Inflation (Friday): Critical for Fed policy expectations.
- Fed Meetings (October & December): Markets still pricing in two cuts.
- Equity Market Sentiment: Risk-off conditions would benefit gold.
- Geopolitical Developments: Russia-Ukraine tensions and NATO response remain key drivers.
