Gold prices surged past the $2,600 mark, reaching new record highs as speculation grows that the Federal Reserve (Fed) will continue to reduce borrowing costs, coupled with rising tensions between Israel and Hezbollah. As of now, the XAU/USD is trading at $2,621, reflecting a 1.37% increase.
Market Sentiment: Risk aversion has taken hold, evident in the performance of Wall Street’s major indices, which posted losses ranging from 0.26% to 0.31%. Fed Governor Christopher Waller indicated that a 50 basis point cut in interest rates is appropriate, pointing to expectations of a significantly low August Personal Consumption Expenditures (PCE) Price Index.
Waller expressed concern over the rapid softening of inflation, noting that the Fed may consider further action if the labor market weakens or if inflation data continues to decline swiftly.
Market Dynamics: Interestingly, traditional correlations appear diminished, as both US Treasury yields and gold prices, alongside the US dollar, continue to rise. The yield on the US 10-year Treasury note stands at 3.726%, an increase of 1.5 basis points. Meanwhile, the US Dollar Index (DXY), which measures the dollar against six major currencies, gained 0.08% to reach 100.71.
With a light economic calendar in the US, the direction of gold prices remains closely tied to the upcoming comments from Fed officials. Notably, Michelle Bowman expressed dissent regarding a 50 basis point cut, suggesting a smaller reduction instead, as a more significant cut could be seen as a “declaration of victory on inflation.”
Looking Ahead: In the upcoming week, the Fed’s communications will feature prominent figures such as Atlanta Fed’s Raphael Bostic, Chicago’s Austan Goolsbee, and Minnesota’s Neel Kashkari. Economic indicators, including S&P Global Flash PMIs, housing data, and the Core Personal Consumption Expenditures (PCE) Price Index— the Fed’s favored inflation measure—are expected to influence the future trajectory of XAU/USD.
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