Gold Prices Inch Closer to One-Week High Amid Dollar Softness and Federal Reserve Chair Powell’s Commentary

Gold prices have just hit their highest point since July 20, while the U.S. dollar plummeted to its weekly low. On Wednesday, the Federal Reserve raised interest rates by a quarter point, as expected, offering relatively balanced opinions regarding the future of the rate-hiking cycle. With this less hawkish stance, gold prices held strong, reaching their weekly high and sustaining the momentum gained last week after the marketplace shifted back toward the safe-haven asset with high expectations over exactly what would end up taking place during the committee’s gathering.

Following the meeting, spot gold increased by 0.4% to $1,979.29 per ounce, reflecting its highest level since July 20. U.S. gold futures jumped by 0.5%, touching $2,009.50 by end-of-day Wednesday.

During July’s gathering, the Federal Reserve unanimously decided to increase interest rates by 25 basis points from 5.25% to 5.50%. While this hike may have raised rates to their highest point in over 20 years, some good news for gold did come from the meeting. Powell’s statements regarding the future cycle displayed hope for a nearing end, or at least a pause, possibly around September.

The Federal Reserve currently plans to monitor the economy and make its decision on a case-by-case basis. The committee still aims to reach the 2% inflation line, which means we have a “long way to go,” though rates have already eased significantly compared to this time last year. Moving forward, the Federal Reserve will assess economic conditions, inflation rates, and “the totality of the incoming data” to determine if rate hikes will be necessary through September and onward.

“I would say it’s certainly possible that we will raise funds again at the September meeting if the data warranted,” Chairman Jerome Powell explained. “And I would also say it’s possible that we would choose to hold steady, and we’re going to be making careful assessments, as I said, meeting by meeting.”

Despite this sentiment, gold continues to hold strong. Bullion typically responds sensitively to interest rates, as high rates increase the opportunity costs of holding non-yielding assets. With that being said, many still believe Powell’s statement on the possibility of the Fed deciding “to hold steady” will be the scenario that plays out.

“Gold is still in a medium-to-long term uptrend and held technical supports despite the longer-for-higher rates narrative,” Nicholas Frappell, the global head of institutional markets for ABC Refinery, explained.

On another note, the gross domestic product rate in the U.S. is expected to increase at a 1.8% rate this quarter, dropping from last quarter’s rate of 2%. Over the last 12 months, the consumer price index has increased by 3%, compared to last year’s rate of 9.1%. June’s figure for U.S. Durable Goods Orders rose by 4.7%, despite expectations of just 1%.

“It is time for the Fed to give the economy time to absorb the impact of past rate hikes,” Joe Brusuelas, the U.S. chief economist at RSM, chimed in. “With the Fed’s latest rate increase of 25 basis points now in the books, we think that improvement in the underlying pace of inflation, cooler job creation, and modest growth are creating the conditions where the Fed can effectively end its rate hike campaign.”

With numerous surprising figures flooding in over the past few weeks, there’s no telling how the economy will respond to the Fed’s latest rate hike. Future market expectations now may point above where they should be.

“U.S. economic data outcomes have tended to surprise higher in recent weeks, which points to surprise risk being skewed to the upside,” Ilya Spivak, the head of global macro at Tastylive, stated. “Gold may struggle in such a scenario as markets upgrade the probability of one more hike this year.”

However, short-term struggle means nothing in the grand scheme of gold’s potential. Analysts are still betting on a successful end-of-year outcome for gold, with long-term gains averaging multiple percentage points over the next few years.

Gold isn’t the only precious metal on the rise following the Fed’s meeting, though. Silver also increased by 0.6% to $25.06 per ounce, maintaining prices above the critical $25 line. Platinum rose by 1.1% to $971.88 per ounce, while palladium edged up 0.3% to a modest $1,263.33 per ounce.

Moving forward, traders can assess the European Central Bank’s decision on interest rates and the Core PCE data set to release shortly. As always, investors should consult their financial advisors before making portfolio decisions.

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