Gold Holds Steady Near Record Highs as Markets Await Fed’s Next Move
Gold prices continue to trade within a narrow range, hovering around the significant psychological mark of $2,500. This sideways movement reflects the cautious sentiment among traders as they await further cues from the Federal Reserve (Fed) regarding its future monetary policy, particularly concerning potential rate cuts. Despite the consolidation, several factors influence the gold market, creating a delicate balance between bullish and bearish forces.
One of the key factors limiting the upside for gold is the recent recovery of the US Dollar (USD). After hitting its lowest level since January, the USD has shown signs of modest recovery, which generally puts downward pressure on gold since gold is priced in dollars. Additionally, a broadly positive tone in global equity markets is a headwind for the safe-haven metal. When risk appetite increases, as indicated by rising equity markets, investors often shift away from gold in favor of riskier assets, thereby capping the gains in gold prices.
XAU/USD Daily Price Chart
Source: TradingView, prepared by Richard Miles
However, the market’s focus remains on the Federal Reserve’s next moves. The July FOMC meeting minutes, scheduled for release on Wednesday, along with Fed Chair Jerome Powell’s speech at the Jackson Hole Symposium on Friday, are anticipated events that could provide clearer direction for gold prices. Traders are particularly interested in any signals regarding the Fed’s rate-cutting path, especially in light of recent economic data and comments from Fed officials.
Despite the recent upbeat Retail Sales report for July, which eased some recession fears in the US, market participants are still expecting the Fed to begin easing its policy stance. The CME Group’s FedWatch Tool suggests that there is a strong possibility the Fed will start reducing interest rates at its September meeting, with expectations of over 200 basis points in cuts by the end of 2025. This dovish outlook is largely based on the belief that the risks to the US economy are shifting towards concerns about the labor market rather than inflation.
Comments from various Fed officials have further fueled speculation about the future direction of monetary policy. Minneapolis Fed President Neel Kashkari recently stated that discussing a rate cut in September is appropriate, given the changing economic risks. Chicago Fed President Austan Goolsbee echoed these sentiments, noting that the US economy is not showing signs of overheating, and therefore, the central bank should be cautious about maintaining restrictive policies for too long. Additionally, San Francisco Fed President Mary Daly emphasized the need for a gradual approach to lowering borrowing costs, downplaying the likelihood of a sharp economic slowdown.
Geopolitical factors also continue to play a role in supporting gold prices. Tensions in the Middle East, particularly the ongoing conflict between Israel and Hamas, remain a concern. Recently, US Secretary of State Antony Blinken indicated that Israeli Prime Minister Benjamin Netanyahu had accepted a proposal aimed at resolving issues that have been hindering the release of hostages held by Hamas. The resumption of negotiations this week has sparked optimism that a ceasefire could be achieved, potentially reducing the risk of a broader regional conflict. This development could lead to a decrease in demand for safe-haven assets like gold, as investors’ risk appetite increases with the easing of geopolitical tensions.
In summary, the gold market is currently in a state of consolidation, with prices holding steady near record highs as traders await more definitive signals from the Federal Reserve. The interplay between a recovering US Dollar, positive equity market sentiment, dovish Fed expectations, and geopolitical risks is creating a complex environment for gold. While the immediate upside may be capped by the stronger dollar and risk-on sentiment, the underlying support from expectations of Fed rate cuts and geopolitical uncertainties should help limit any significant downside in gold prices. The release of the FOMC meeting minutes and Fed Chair Powell’s upcoming speech will likely be pivotal in determining the next leg of the directional move for gold. Until then, traders are likely to remain on the sidelines, cautiously awaiting further developments.
