Gold gained traction earlier this week following a temporary dip below critical $1,900-per-ounce levels. With a weak U.S. dollar and dropping Treasury yields, gold gained some much-needed attention in light of the latest U.S. economic data supporting cooling inflation rates and the end of the interest-rate hiking cycle. The next thing traders can look forward to now is the upcoming minutes from July’s Federal Reserve gathering, providing deeper insight into the committee’s strategy regarding upcoming actions.
“Investors will be looking for clues on the Fed’s tone in its minutes report, particularly whether or not it has a dovish or hawkish tilt,” Mary Ann Bartels, the chief investment strategist at Sanctuary Wealth, explained in an interview with DealBook.
Spot gold increased Wednesday by 0.1% to $1,902.50 per ounce. Gold futures are sitting at $1,904 per ounce.
According to Peter Fertig, an analyst for Quantitative Commodity Research, gold has gained its recent wave of strength from the U.S. dollar weakness. Ten-year U.S. Treasury yields also just plummeted from ten-month highs.
“Economic data out of the U.S. thus far has provided room for rates to be kept high for longer. We have the U.S. retail sales data yesterday pushing back against recession concerns and potentially keeping safe-haven flows at bay,” Yeap Jun Rong, a market strategist at IG, explained.
While the recent data may not depict an economy recovering at accelerated rates, it does show that the Fed likely will not need to raise rates next session. Considering gold’s ability to hold strong despite the enormous headwinds of interest rate hikes over the last year, analysts expect the precious metal to begin excelling as soon as the pauses begin. Once rates begin dropping by 2024, the precious metal may truly take off.
According to July’s FOMC minutes released on August 16, the Federal Reserve maintains its plan to continue monitoring the economy and making its decisions accordingly.
“They also agreed that they would continue to assess additional information and its implications for monetary policy. In determining the extent of additional policy firming that may be appropriate to return inflation to 2 percent over time, members concurred that they will take into account the cumulative tightening of monetary policy, the lags with which monetary policy affects economic activity and inflation, and economic and financial developments,” the minutes stated.
“All members affirmed that they are strongly committed to returning inflation to their 2 percent objective” but would “be prepared to adjust the stance of monetary policy as appropriate if risks emerge that could impede the attainment of the Committee’s goals.”
With that being said, current marketplace predictions are forecasting over a 90% likelihood of a rate pause in September following the latest CPI data, according to CME’s FedWatch Tool. The probability increased by four percentage points after the Consumer Price Index for July came out. The current likelihood of an interest rate hike in November now sits at 30%.
“The Committee’s assessments will take into account a wide range of information, including readings on labor market conditions, inflation pressures and inflation expectations, and financial and international developments,” the minutes stated.
Gold’s recent gains may also be attributed to economic fears stemming from weakness in China. As the Chinese yuan loses value, more nations around the globe are continuing to suffer economic downturns. With recessionary fears heightening, gold can gain attention for its safe-haven status.
“The main factor slowing gold’s decline is the lack of confidence in the health of the global economy, with the latest data out of China adding to that negative sentiment,” Rupert Rowling, an analyst for Kinesis Money, explained.
Gold isn’t the only precious metal holding strong despite severe pressures lately, either. Silver also gained 0.8%, reaching $22.68 per ounce on Wednesday.
Moving forward, traders can continue analyzing the incoming data and further information from July’s minutes to predict how the Fed may respond in September. Most predict a pause, which may bode well for gold. How the economy will respond to a pause isn’t clear yet, though gold can hopefully enjoy a break from the Fed’s hawkish actions.
Outside of the U.S., retail demand in China continues to soar, despite the nation’s economic activity. Central bank demand for gold may not be as high as it was in 2022, though it remains on track for a positive year. Numerous analysts expect gold to reach well above the $2,000 to $2,100-per-ounce line by 2024, breaking previous records.
As always, investors should consult their financial advisors before making any portfolio decisions.
