Gold has remained stuck in a wide range of trading for the past four months, but dovish comments from Federal Reserve Chairman Jerome Powell are creating a strong optimistic sentiment in the market, as both Wall Street and Main Street expect prices to increase next week.
On Friday, in his highly anticipated speech at the Fed's annual meeting, Mr. Powell paved the way for the possibility of a rate cut as early as next month. He highlighted the risks of rising inflation and slowing economic growth. However, he also said that while risks are balanced, US monetary policy may need to be adjusted.
...As policy remains limiting, the fundamentals and changes in risk balance may require us to adjust policy stance, he said in a prepared speech.
Immediately after the speech, gold prices rebounded by 1% and maintained this upward momentum, aiming to close the week near the peak.
Mr. Powells speech really surprised many people. This statement is clearly understood by the market as dovish, bringing gold prices back to an upward trajectory this week. We believe that the recent weakening period is a good opportunity, because from now on, the precious metal is likely to continue to move up" - Naeem Aslam - Investment Strategy Director at Zaye Capital Markets commented.
Ole Hansen - Head of Commodity Strategy at Saxo Bank, said that although the gold market was still quite quiet in the summer, the FED opened the door for interest rate cuts until the end of the year.
In this context, the yield curve will be steeper and the USD will weaken, which is a positive environment for gold. Although the summer market is still quiet, it is difficult to think that prices will not be higher next week or in the long term, he said.
In the short term, Hansen believes gold needs to surpass $3,450/ounce before investors can expect a return to a record high above $3,500/ounce in April.
Christopher Vecchio - Head of futures and foreign exchange strategy at Tastylive.com, commented that despite a quiet summer, gold is ready to break out as the FED prepares to loosen interest rates.
It seems we will see rate cuts as inflation approaches 3%, so holding gold at this time is still a reasonable choice for investors, he said.
Michael Brown, senior market analyst at Pepperstone, said that while Mr. Powell's comments could trigger a strong rally in gold prices, there are still some unanswered questions regarding Powell's future policy direction.
Powell has clearly supported the idea of a rate cut in September, but I think the focus will quickly shift to whether it will be a series of cuts, or just a one-time cut and stop, he said.
Even though gold is not ready to break out right now, Brown said he is still a long-term optimistic about gold.
This is especially true as US President Donald Trump has once again stepped up attacks on the Fed, further eroding the concept of monetary policy independence and thereby increasing the appeal of hard assets. I think there is a high possibility that gold will set a new historical peak before the end of this year, he said.
This week, 13 market analysts participated in a gold survey, and none predicted a decrease in prices. Eight analysts (62%) see gold rising next week. Meanwhile, five analysts (38%) are neutral on the precious metal.
Meanwhile, Kitco's online poll recorded 194 votes, showing that retail investors on Main Street are also less optimistic than before, but still maintain confidence in gold's prospects.
115 retail traders (59%) expect gold prices to rise next week, 35 (18%) see gold falling, and the remaining 44 (23%) see gold prices moving sideways in the short term.
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