Gold prices (XAU/USD) maintained a positive trajectory, hovering around $2,515 per ounce during the early Asian session on Monday, driven by a weaker US Dollar (USD) and dovish comments from Federal Reserve (Fed) Chair Jerome Powell. Powell’s recent speech has fueled expectations of imminent interest rate cuts, contributing to the yellow metal’s strength.
At the Kansas City Fed’s annual economic symposium in Jackson Hole on Friday, Powell signaled that the central bank might start reducing interest rates as early as September. His comments, which included an acknowledgment of recent labor market softness, have broadly impacted the USD. Powell stated that the Fed did not “seek or welcome further cooling in labor market conditions,” indicating a more accommodative monetary policy.
The financial markets have priced in a 25 basis point (bps) rate cut with significant anticipation, and the probability of a more substantial rate reduction has increased to 36.5%, up from 24% the previous week, according to the CME FedWatch Tool. This shift in expectations enhances gold’s appeal to investors holding other currencies, as lower interest rates generally make non-yielding assets like gold more attractive.
In addition to the Fed’s dovish stance, geopolitical tensions have further supported gold prices. Early Sunday, Hezbollah launched a barrage of rockets and drones at Israel, prompting the Israeli military to conduct pre-emptive strikes in southern Lebanon. The escalating conflict in the Middle East has bolstered demand for safe-haven assets like gold, adding to its appeal amid global uncertainties.
