Gold surged back above $2,500 an ounce on Friday following remarks by Federal Reserve Chair Jerome Powell, who indicated that interest rate cuts could begin as early as September.
By 12:30 p.m. ET, spot gold had climbed 0.9% to $2,508.16 per ounce, recovering from a dip below the $2,500 mark the previous day. U.S. gold futures also saw a 1.0% increase, reaching $2,542.70 per ounce in New York.
In a highly anticipated speech at the annual Jackson Hole conference, Powell reinforced the growing expectation that the Fed will start lowering interest rates next month, aiming to prevent further weakening of the U.S. labor market.
“The time has come for policy to adjust,” Powell stated, noting that the path of rate cuts would depend on upcoming data, evolving economic outlooks, and the balance of risks.
Following his comments, both Treasury yields and the dollar declined, pushing gold prices up by as much as 1.3% during the day, bringing them close to their all-time high of $2,531.75, set earlier in the week.
Gold has been hitting record highs in recent weeks as anticipation grew that the Fed was nearing a pivot towards lower interest rates, which typically benefits gold, a non-interest-bearing asset.
This rally comes despite the backdrop of high borrowing costs, a situation that has puzzled analysts since gold usually moves inversely to bond yields. The disconnect was driven in part by strong central bank purchases, robust consumer demand in China, and safe-haven buying amid rising geopolitical tensions.
The latest rise in gold prices is attributed to the prospect of lower rates, signaling a return to traditional macroeconomic factors like bond yields. In recent days, swap traders have solidified their bets that the Fed will cut rates by as much as one percentage point by the end of the year, starting with a likely 25- or 50-basis-point cut in September.
Minutes from the Fed’s July meeting revealed that several officials saw a case for reducing borrowing costs next month, and recent jobs data, which showed weaker-than-expected employment growth, strengthens the likelihood of imminent rate cuts.
After Powell’s speech, market expectations for rate cuts through the end of the year remained unchanged, with steady odds for a quarter-point cut in September.
“Powell’s speech supports the case for gold, copper, and other risk assets,” said Bart Melek, global head of commodity strategy at TD Securities, in a Bloomberg note. “His confidence that inflation is on track to reach 2% and his reluctance to see further cooling in the labor market suggest that a rate cut in September is likely, with the potential for more aggressive cuts if the economy weakens further.”
Melek added that Powell’s remarks confirmed what gold traders had anticipated: a rate reduction is on the horizon. TD Securities forecasts that gold prices could rise above $2,700 in the coming quarters.
