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Gold prices advanced on Friday, buoyed by rising optimism of a September rate cut following comments by Federal Reserve Chair Jerome Powell at this year’s Jackson Hole symposium.
Spot gold rose 1% to $3,372.60 per ounce by 12:30 p.m. ET, the highest in nearly two weeks. US gold futures also gained 1%, trading at $3,416.90 an ounce in New York.
In his highly anticipated speech Friday morning, Powell acknowledged that the US economy is facing a “challenging situation”, with inflation risks now tilted to the upside and employment risks to the downside.
This shift in the balance of risks, he remarked, may warrant adjusting the Fed’s policy stance.
While the Fed Chair stopped short of committing to a rate cut next month, the market interpreted his comments as more dovish than expected.
Traders now see a 90% chance of a 25 basis-point rate cut in September, up from 75% before the speech, CME’s FedWatch tool showed.
“Powell surprised a worried market, opening the express lanes to a September rate cut, which has boosted every single asset, including gold,” Tai Wong, an independent metals trader, told Reuters.
A Fed rate cut would bode well for gold, as it yields no interest and therefore has more appeal in a low-rate environment. Meanwhile, the US dollar went down 0.7%, further supporting bullion’s rising status as an alternative reserve asset.
“It will be important to see if gold can break and hold above $3,400 in the coming days,” Wong added.
“With those US rate cut bets now intensifying after the speech, gold could be poised for another fresh record high,” said Ewa Manthey, a commodity strategist at ING Groep. The speech by the Fed chair is “the one catalyst that’s been missing to reignite that rally we’ve seen earlier this year.”
To date, gold has risen by nearly 29% on expectations of lower borrowing costs, along with geopolitical tensions and central bank buying.
While the precious metal has been range-bound over the past few months, market watchers, including UBS Group and Citi, are anticipating more upside and recently raised their price forecasts.
(With files from Bloomberg and Reuters)