Gold finished last week strong ahead of the holiday weekend, positioning itself to achieve its second consecutive week of gains. With the falling odds of a rate hike in September, U.S. Treasury yields dropping, and the dollar losing its footing, bullion’s in the perfect position to gain traction ahead of the next FOMC gathering. Gold’s end-of-week gains came right after the U.S. jobs data revealed signs of an easing job market defined by rising unemployment figures and moderate wage improvements.
Ahead of the data release last Thursday, spot gold gained 0.2%, reaching $1,942.56 per ounce. By the end of the week, the precious metal achieved an over 1% weekly gain, touching nearly one-month highs that hadn’t been reached since August 2. Gold futures also climbed by 0.2% to $1,969.40 per ounce ahead of the data release.
At the same time, the U.S. dollar and Treasury yields concluded the week on a decline, making gold more attractive to buyers. With the U.S. dollar falling from its recent highs and yields down turning, more investors are looking toward bullion with the expectation of a rate pause by September 19 and 20 when the Fed hosts its next monetary policy meeting.
Recent data released last week showed that consumer spending in the U.S. increased by the most in six months during July. This uptick, combined with the cooling inflation rates, reaffirms the view that the Federal Reserve should keep interest rates the same during September’s meeting.
Atlanta Fed President Raphael Bostic chimed in, stating that the Fed must tread lightly given that the monetary policy is already tight enough. Bostic believes the current rates will allow inflation to reach 2% in a “reasonable” amount of time.
“I feel policy is appropriately restrictive,” Bostic explained. “I think we should be cautious and patient and let the restrictive policy continue to influence the economy, lest we risk tightening too much and inflicting unnecessary economic pain.”
Additional committee members seem to agree with Bostic’s dovish stance.
“The risk of inflation staying higher for longer must now be weighed against the risk that an overly restrictive stance of monetary policy will lead to a greater slowdown in activity than is needed to restore price stability,” the Boston Fed President, Susan Collins, explained. “This context calls for a patient and careful, but deliberate, approach to policy, allowing time to assess the effects of policy actions to date, and then acting appropriately.”
All of these statements seem to be hinting at one thing: a rate pause in September.
According to CME’s FedWatch Tool, the current likelihood of rates staying the same after this month’s meeting is 93%. With this confidence, gold has enjoyed recent price firming, as investors expect to see the decreased opportunity costs of buying into bullion as rates drop.
In overseas news, inflation continued to remain steady in Europe during August despite price growth figures dropping as most analysts expected. The mixed data makes the next interest rate decision quite complex for the European Central Bank.
Analysts are currently betting on a one-in-four chance of a rate hike from Europe’s central bank on September 14. Keep in mind that Europe’s interest rates still sit well below the U.S. level at under 4.00. The U.S. is currently at 5.25 to 5.5.
“But as I said, one month of data is only one piece of information. We need to see that continue,” European Central Bank Chief Economist Philip Lane stated when expressing an optimistic opinion regarding the recent data. “The detailed inflation data don’t come out until the middle of the month. So we will have to see,” Lane continued.
In other news, gold isn’t the only precious metal on the rise amid the upcoming central bank meetings. Spot silver increased by 0.4% to $24.53 per ounce late last week. At the same time, platinum spiked by 0.3% to $970.23 per ounce, and palladium rose by a whopping 1.6% to $1,233.63 per ounce despite the recent declines.
As we approach the upcoming Federal Reserve and European Central Bank meetings, all eyes will be on the incoming data for further clues on how the committees may respond. The marketplace may feel confident over this month’s rate pause, though no one knows what will happen next. If September’s meeting concludes with dovish opinions regarding future rate pauses and cuts, gold may see excellent support.
As always, investors should consult their financial advisors before making any portfolio decisions.
