Gold rises on Fed rate cut bets following Powell’s policy change

• Gold rises after Powell’s comments from Jackson Hole on potential policy easing in September.
• Powell cites inflation control, labor market concerns; Daly echoes expectations for rate cuts.
• US durable goods orders rose 9.9% in July, showing economic strength; Tensions in the Middle East add to Gold’s appeal.
• US 10-year yields reach 3.81%; traders cut 50 bps off bets, await nonfarm Payrolls for more info.

Gold extended gains on Monday amid growing bets that the US Federal Reserve (Fed) will start easing policy in September. That’s a certainty after Fed Chairman Jerome Powell’s speech in Jackson Hole, when he said, “The time has come for policy to adjust.” XAU/USD is trading at $2,516 per troy ounce, up a minimal 0.16%.

Last Friday, Jerome Powell said he was confident inflation was moving toward the Fed’s 2 percent target and expressed concern about a weaker labor market, indicating employment risks were tilted to the upside.

Powell gave the green light to cutting interest rates, adding that further cooling in the labor market was not welcome.

Powell’s comments were echoed by San Francisco Fed President Mary Daly, who said: “It’s time to adjust our policy. It’s hard to imagine anything could derail a rate cut in September.”

Daly added that it was premature to know the size of interest rate cuts, but said that if the economy weakens “more than anticipated, we will have to be more aggressive.”

US durable goods orders rose from a -6.9% decline in June to a 9.9% month-on-month expansion in July, beating forecasts for a 4% increase. This was the most significant gain since May 2020, suggesting the economy is still resilient despite some signs of a slowdown.

Bullion prices received a lifeline from rising tensions in the Middle East as the Israel-Hezbollah conflict escalated over the weekend. Fears that the conflict could widen would be positive for the gold metal.

U.S. Treasury yields rebounded as the benchmark 10-year note climbed a basis point to 3.81 percent. Meanwhile, traders trimmed their bets that the Fed will cut rates by 50 bps at its September meeting.

The CME FedWatch tool shows that market participants have fully priced in a 25bps cut, while the odds for a bigger size are 30%, down from 36.5% last Friday.

Now, as the Fed turns to the jobs market, the August nonfarm payrolls report will be the final piece of the puzzle to determine the size of the cut.

Daily market reasons: Gold price rises ahead of next week’s US inflation report

• If US economic data continues to be weak, the bullish trend in the price of gold will remain, which would increase speculation of a further rate cut.
• On Tuesday, the US Conference Board will release consumer confidence for August, which is expected to improve from 100.3 to 100.6.
• Gross Domestic Product (GDP) figures for Q2 in the second estimate are expected to improve from 1.4% to 2.8%.
• On Friday, the Fed’s favorite inflation gauge, the personal consumption expenditures (PCE) price index, will be released. It is expected to grow from 2.6% to 2.7% YoY.

Technical outlook: Gold’s uptrend intact as buyers target $2,550

Gold’s uptrend remains in play, but buyers have failed to recapture the all-time high (ATH) of $2,531. A breach of the latter will expose the $2,550 mark, followed by the $2,600 mark.

On the other hand, if Gold reaches a daily close below $2,500, it will sponsor a test of the previous all-time high (ATH) of $2,483. If broken, gold’s next support would be the May 20 peak at $2,450, followed by the 50-day Simple Moving Average (SMA) at $2,406.