Gold (XAU/USD) is trading up almost half a percent, reaching the $2,380s on Thursday, as markets anticipate potential interest rate cuts. In his second day of testimony to US lawmakers, Federal Reserve (Fed) Chairman Jerome Powell expressed cautious optimism that inflation might decrease without causing significant job losses, aiming for a “soft-landing.” However, he emphasized a vigilant, data-dependent approach to inflation.
POWELL’S COMMENTS BOOST GOLD AS RATE CUTS EXPECTED
Powell’s remarks have positively influenced gold, which tends to perform well when interest rates are expected to fall. Lower interest rates enhance gold’s attractiveness by reducing the opportunity cost of holding the asset.
CENTRAL BANKS CONTINUE TO HOARD GOLD
Despite the People’s Bank of China (PBoC) halting gold purchases for the second consecutive month in June, central banks globally continue to accumulate the precious metal. This ongoing accumulation supports gold prices.
MARKET REACTIONS AND EXPECTATIONS FOR RATE CUTS
Gold gained on Wednesday after Powell’s testimony to the House Financial Services Committee. Powell indicated that current Fed policy is effectively bringing inflation down to the Fed’s 2.0% target. Market-based tools like the CME FedWatch are showing a high probability of a 0.25% rate cut in September.
GOLD SUPPORTED BY CENTRAL BANK DEMAND
Recent data reveals continued central bank buying, with the Bank of India purchasing nine tons, the National Bank of Poland four tons, and the Czech National Bank two tons in June. Citibank analysts remain optimistic about central-bank demand, forecasting gold prices to reach $2,600 by the end of 2024.
TECHNICAL ANALYSIS: GOLD UP FOR THE THIRD DAY
Gold has been rising for three consecutive days, defying a bearish Two-Bar reversal pattern. This technical pattern typically signals a short-term reversal, but gold continues its upward trajectory.
