Gold prices extended their gains on Monday, trading at $2,516 per troy ounce, a modest increase of 0.16%. This rise is fueled by growing expectations that the US Federal Reserve (Fed) will implement policy adjustments in September. Fed Chair Jerome Powell’s recent comments at the Jackson Hole symposium, where he stated, “The time has come for policy to adjust,” have bolstered confidence in imminent rate cuts.
Powell expressed optimism about inflation moving toward the Fed’s 2% target while also voicing concerns about a weakening labor market, suggesting that employment risks are tilted to the upside. He signaled readiness for interest rate reductions, though he cautioned against further labor market cooling.
San Francisco Fed President Mary Daly supported Powell’s stance, noting, “The time to adjust policy is upon us. It’s hard to imagine anything could derail a September rate cut.” While Daly acknowledged uncertainty about the magnitude of potential cuts, she indicated that a more aggressive approach might be necessary if economic conditions worsen beyond expectations.
The US Durable Goods Orders report also contributed to market dynamics, showing a robust 9.9% month-over-month increase in July, reversing a 6.9% contraction in June and surpassing the forecast of a 4% rise. This significant gain, the largest since May 2020, suggests continued economic resilience despite some signs of slowing growth.
Gold prices received additional support from escalating geopolitical tensions in the Middle East, particularly the intensification of the Israel-Hezbollah conflict. Increased uncertainty and fears of a broader conflict are expected to bolster demand for safe-haven assets like gold.
In the bond market, US Treasury yields have rebounded, with the 10-year benchmark note rising by one basis point to 3.81%. Concurrently, traders have adjusted their expectations for the Fed’s September meeting, reducing the likelihood of a 50 basis point cut. The CME FedWatch Tool now indicates a full pricing in of a 25 basis point reduction, with the probability of a larger cut at 30%, down from 36.5% last Friday.
Looking ahead, the August Nonfarm Payrolls report will be crucial in determining the scale of any potential rate cut, as the Fed continues to focus on labor market conditions.
