Gold prices surged late in the North American session after the Federal Reserve decided to keep interest rates unchanged. Fed Chairman Jerome Powell hinted at the increasing significance of U.S. employment data in shaping future monetary policy. The XAU/USD pair currently trades at $2,447, reflecting a gain of over 1.50%.
Following Powell’s press conference, Wall Street saw gains. He noted that the disinflation process has “broadened” and acknowledged potential risks in the labor market. Powell stated, “We don’t think of the labor market as it is currently as a likely source of inflation pressures,” adding that any downturn in the job market would prompt a response from the Fed.
In light of Powell’s comments, the upcoming July Nonfarm Payrolls report, set to release on Friday, has become crucial as the Fed’s focus shifts towards employment concerns. Market participants now anticipate 70 basis points of interest rate cuts by the year’s end.
The Fed’s monetary policy statement highlighted that the Committee does not foresee reducing the target range until there is greater confidence that inflation is moving sustainably towards 2 percent. Despite some easing, inflation remains “somewhat elevated,” and the risks tied to the dual mandate have become more balanced.
Following Powell’s statements, U.S. Treasury bond yields declined sharply, with the 10-year benchmark note rate falling to 4.066%, down nearly eight basis points, weakening the U.S. Dollar. The U.S. Dollar Index (DXY), which measures the dollar against six other currencies, dropped 0.42% to 104.03.
Gold prices also jumped due to escalating geopolitical tensions after Hezbollah’s weekend attack on Israel, which retaliated by killing Hamas leader Ismail Haniyeh in Iran. Kyle Rodda, a market analyst at Capital.com, attributed the rise in gold prices to increased safe-haven demand amid the Middle East developments.
Economic data from the U.S. revealed a slowdown in private hiring in July, as reported by the Automatic Data Processing (ADP) Employment Change report. Additionally, Building Permits showed improvement following a decline in May, while the Employment Cost Index (ECI), which the Fed monitors as a gauge of wage inflation pressures, decreased in the second quarter of 2024.
