Gold surges as Powell’s much-anticipated comments spark rate cut hopes

[stack of shiny gold bars 3d illustration]
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Gold futures rose sharply Friday after dovish comments from Federal Reserve Chair Powell that effectively opened the door to a September rate cut created bullish sentiment in the marketplace.

In his much-anticipated speech at the Federal Reserve's annual symposium at Jackson Hole, Powell laid the groundwork for a potential rate cut [https://seekingalpha.com/news/4488363-fed-rate-cut-odds-rise-after-powells-jackson-hole-speech], highlighting rising inflation risks and slowing economic growth, but despite balanced risks, a shift in U.S. monetary policy might be needed.

"With policy in restrictive territory, the baseline outlook and the shifting balance of risks may warrant adjusting our policy stance," Powell said in his prepared remarks.

The Fed has opened the door wide to rate cuts through year-end, according to Ole Hansen, head of commodity strategy at Saxo Bank.

"In this environment, the yield curve is going to steepen and the U.S. dollar is going to weaken - this is a positive environment for gold," Hansen said in a note. "It's still in a quiet summer market but it's hard to see how prices aren't higher next week and longer term."

Traders now see a 85% chance of a 25 basis-point rate cut in September, up from 75% before the speech, according to CME's FedWatch tool.

Gold typically performs well in a low interest rate environment, since the metal does not offer any yield and becomes more attractive relative to interest-bearing assets.

Gold also was aided by a 1% drop in the U.S. dollar, which makes gold less expensive for other currency holders.

Meanwhile, President Trump threatened to fire Fed Governor Lisa Cook if she does not resign, ramping up his effort to gain influence over the central bank.

Front-month Comex gold (XAUUSD:CUR [https://seekingalpha.com/symbol/XAUUSD:CUR]) for August delivery finished +1.1% to $3,374.40/oz, its highest settlement value in two weeks, and front-month Comex August silver (XAGUSD:CUR [https://seekingalpha.com/symbol/XAGUSD:CUR]) ended +2.6% to $39.003/oz, its best close since July 24; for the week, gold gained 1.1% and silver surged 2.9%.

ETFs: (NYSEARCA:GLD [https://seekingalpha.com/symbol/GLD]), (NYSEARCA:GDX [https://seekingalpha.com/symbol/GDX]), (GDXJ [https://seekingalpha.com/symbol/GDXJ]), (NYSEARCA:IAU [https://seekingalpha.com/symbol/IAU]), (NYSEARCA:NUGT [https://seekingalpha.com/symbol/NUGT]), (PHYS [https://seekingalpha.com/symbol/PHYS]), (GLDM [https://seekingalpha.com/symbol/GLDM]), (AAAU [https://seekingalpha.com/symbol/AAAU]), (SGOL [https://seekingalpha.com/symbol/SGOL]), (RING [https://seekingalpha.com/symbol/RING]), (BAR [https://seekingalpha.com/symbol/BAR]), (OUNZ [https://seekingalpha.com/symbol/OUNZ]), (SLV [https://seekingalpha.com/symbol/SLV]), (PSLV [https://seekingalpha.com/symbol/PSLV]), (SIVR [https://seekingalpha.com/symbol/SIVR]), (SIL [https://seekingalpha.com/symbol/SIL]), (SILJ [https://seekingalpha.com/symbol/SILJ])

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