Gold Prices Dip Below $2500 as Markets Await Powell's Speech to Seek Clues on Fed Rate Cuts

Thursday, 8/22/2024 15:14

GOLD PRICES fell and broke below $2500 on Thursday after minutes from the Federal Reserve's latest meeting indicated a likely rate cut in September. Meanwhile, the US dollar slightly recovered from its year-to-date lows, while 10-year Treasury yields rose from three-week lows ahead of Federal Reserve Chair Jerome Powell’s speech at Jackson Hole on Friday, writes Atsuko Whitehouse at BullionVault.

The minutes published on Wednesday from the Federal Reserve’s July meeting revealed that, although the interest rate was unanimously held at a 23-year high of 5.25% to 5.50% for the seventh consecutive meeting, a ‘vast majority' of Federal Reserve officials believed that 'it would likely be appropriate to ease policy at the next meeting' if economic data met expectations.

Data published by Labor Department on Wednesday showed that the US economy created 818,000 fewer jobs than originally reported in the 12-month period through March 2024, the biggest downward revision of jobs since 2009.

A September rate cut has been considered a certainty for the past month, while the odds of a 0.5% rate cut at the next meeting edged lower to 28.5% this morning, down from 38.0% on Wednesday, according to the CME derivatives exchange’s FedWatch tool.

Spot gold fell 0.8% to $2491 per ounce on Thursday lunchtime, 1.6% below its all-time high of $2531 per ounce reached on Tuesday. The yellow metal is now up over 20% since the end of 2023, while the greenback has declined nearly 1% during the same period.

Chart of ICE U.S. Dollar Index v Gold. Source: Google

The Dollar Index—a measure of the US currency's value versus its major peers—edged higher on Thursday after dipping to its lowest level this year in the previous session. Meanwhile, ten-year US Treasury yields—a benchmark rate for government, as well as many finance and commercial borrowing—also edged higher on Thursday after hitting their lowest level since August 5, when recession fears in the world's biggest economy dragged down global stocks.

“The risk of consolidation or even a correction looms (for Gold),” said the latest report of derivatives platform Saxo Bank's Strategy Team.

“With the price action showing signs of exhaustion following the latest rally to fresh records, not least given yesterday’s muted response to weaker US job growth and FOMC minutes almost confirming a September rate cut.”

“Gains in the precious metal were muted by weak physical demand in China,” said Daniel Hynes, Senior Commodity Strategist at ANZ.

Imports of gold into China in July fell 24% to 44.6 tonnes, the lowest level in more than two years, according to customs data released on Tuesday. This decline follows an even more dramatic decrease in June, when shipments plunged 57% from the previous month to the lowest level in four years, due to a sharply reduced Chinese gold price premium during that period, which deterred importers.

The Shanghai Gold Exchange (SGE) premium over London fell in July, with the daily average dropping to $12 per ounce from $28 in June. The average premium in August has now decreased further to $1, with the premium turning into a discount of $9 this week, as gold prices in the Yuan rose to just 0.5% below their all-time high of ¥577 per gram in the last session.

Silver prices in the metal’s No.1 consumer market meantime continued to show a historic premium to London, holding at $3.18 per ounce as an average of August so far, although falling from $3.55 in July and $3.81 in June.

The grey metal has risen 25% so far this year in China, while the London prices have increased 23% so far.

Meanwhile, silver prices in London also fell 0.7% to £24.90 per ounce on Thursday.

Gold priced in Euros edged lower on Thursday by 0.6% to €2238, while the UK gold price in Pounds per ounce fell 1.0% to £1899.

Members of the European Central Bank (ECB) Governing Council noted the need for its monetary policy to remain cautious of incoming data, given the rise in some measures of underlying inflation, and that prices will remain above its annual growth target of 2% "well into 2025," according to the minutes published on Thursday for the meeting held on July 17 and 18, where the central bank kept its main interest rate at 3.75%.

Atsuko Whitehouse is the Head of the Japanese Market at BullionVault and the Editor of Japanese GoldNews.

See all articles by Atsuko Whitehouse here.

Please Note: All articles published here are to inform your thinking, not lead it. Only you can decide the best place for your money, and any decision you make will put your money at risk. Information or data included here may have already been overtaken by events – and must be verified elsewhere – should you choose to act on it. Please review our Terms & Conditions for accessing Gold News.

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