Gold prices close to record levels

The spot price of gold rose on Monday, just $7 below its record high of $2,531.77 reached last week. The dollar’s decline to its lowest level in over a year has made gold more affordable for international buyers, adding to price pressure. In addition, yields on 10-year U.S. Treasury bonds have declined, further strengthening gold’s appeal as a safe-haven asset.

In his recent speech at the Jackson Hole Symposium, Powell strongly suggested the likelihood of rate cuts, highlighting the Federal Reserve’s concerns about the cooling U.S. labor market. Powell pointed out that while inflation appears to be on a sustainable path back to the Fed’s 2% target, the central bank fears a further weakening in employment conditions. He noted that the Fed is prepared to adjust its policy accordingly, with market participants now fully pricing in a September rate cut. There is a 64% probability of a 25 basis point cut and a 36% probability of a 50 basis point cut, according to the CME FedWatch tool.

Lower interest rates increase the attractiveness of gold

A lower interest rate environment tends to increase the attractiveness of non-yielding assets such as gold. When borrowing costs fall, gold becomes a more attractive investment, especially compared to interest-bearing assets. UBS analyst Giovanni Staunovo pointed out that the potential for interest rate cuts could significantly increase demand for gold. Staunovo also noted that central banks are likely to continue buying gold due to geopolitical risks, economic uncertainties and fear of sanctions. These factors, combined with ongoing debt concerns, are likely to maintain strong demand for gold despite high price levels.

Robust demand from India and central banks

India, a major consumer of gold, is likely to see strong demand during the upcoming festive season as import duties were recently reduced, making gold more affordable for buyers. Meanwhile, central banks around the world continue to add to their gold reserves as they need to secure certain amounts over time, which could further support the price.

Market forecast

With Powell’s dovish stance and the increasing likelihood of rate cuts, the outlook for gold remains optimistic in the near term. A weaker dollar and lower Treasury yields should continue to support gold prices, with the potential for new record highs if the Fed follows through with its rate cuts. Traders should closely monitor upcoming US economic data as it will play a crucial role in the Fed’s decision-making process and may lead to further gains in gold prices.

Technical Analysis