Gold continued its surge following Fed Chair Powell’s address on Friday, as Middle East tensions rose over the weekend.
Gold (XAUUSD) trades in the $2,520s on Monday, just off its all-time high of $2,531, as a combination of safe-haven demand fueled by rising geopolitical tensions in the Middle East, as well as increased confidence that US interest rates will fall in the medium to long term, make the non-interest-paying asset more appealing to investors.
The precious metal was already soaring after the Fed chair’s statement heralded the start of a lower-interest-rate environment.
Gold edged higher as risk aversion helps. Safe-haven demand
Gold is trading higher on Monday as global risk aversion drives investor demand for safe-haven assets, of which gold is a major example.
Rising Middle East tensions are a concern, following Israel’s massive preemptive strike on Hezbollah positions in Lebanon over the weekend. Hezbollah reacted with a barrage of missiles and drone strikes across northern Israel. Fears that Iran will enter the battle following weeks of threats persist.
Powell’s speech propels gold higher following a sea change in language.
Gold surged over a percentage point on Friday after the Chairman of the Federal Reserve (Fed), Jerome Powell, gave a speech at the Jackson Hole central banking conference, in which he gave the clearest signals yet that the Fed is moving To reduce interest rates.
Powell expressed concern that the US labor market is stagnating due to the impact of persistently high interest rates, which have been in a peak range of 5.25%-5.50% since July 2023. While these had effectively decreased inflation, they were now having a negative influence on corporate recruiting.
“Upside risks to inflation have diminished, downside risks to employment have increased,” Powell stated. He continued: “Labor market cooling is unmistakable, no longer overheated.”
US government bond yields declined following his speech, reflecting investors’ expectations for inflation and interest rates. When yields fall, the yellow metal appreciates because it lowers the opportunity cost of keeping non-interest-paying gold.
The US Dollar Index (DXY) monitors the strength of the dollar. versus a trade-weighted basket, which is negatively connected with gold, fell to a new year-to-date low of 100.53 on Monday morning as traders digested Powell’s remarks.
Gold has benefited from rising anticipation that the Fed will cut interest rates by a “mega” 0.50% in September, more than double the typical 0.25% reduction. According to the CME FedWatch tool, which utilizes the price of 30-day fed fund futures in its calculations, the chances of such a big cut increased from the mid-20% before his speech to the mid-30% following.
