|

Gold tops $3,370 as Powell puts September rate cut on the table

  • XAU/USD climbs 1%, trading above $3,370 after Powell speech.
  • Powell: “Downside risks to the labor market are rising,” opening the door to a September rate cut.
  • Fed Chair Powell said that inflation risks remain tilted to the upside and employment risks to the downside.

Gold price rises as the Federal Reserve (Fed) Chair Jerome Powell opened the door for a September rate cut as he said that “downside risks to the labor market are rising.” At the time of writing, XAU/USD trades with volatility, surpassing the $3,370 initial resistance, up by 1%.

Fed Chair highlights rising labor market risks, balancing inflation concerns with employment softness

In his speech, Powell said that “the baseline outlook and the shifting balance of risks may warrant adjusting our policy stance.” He added that “the stability of the unemployment rate and other labor market measures allows us to proceed carefully.”

He stated that risks on the labor market appear to be in balance and said that they’ve seen a “reasonable base case” that tariffs would create a “one-time” rise in inflation, but it would take some time to be reflected, as said a day ago by Cleveland Fed President Beth Hammack.

Powell said that “risks to inflation are tilted to the upside, and risks to employment to the downside—a challenging situation.”

Gold price reaction

XAU/USD has risen, but it remains shy of cracking last week's high of $3,374. A breach of the latter would expose the $3,400, followed by the June 16 high of $3,452, ahead of the record high of $3,500. On the flipside, the $3,300 figure would be the first demand zone.

Fed FAQs

Monetary policy in the US is shaped by the Federal Reserve (Fed). The Fed has two mandates: to achieve price stability and foster full employment. Its primary tool to achieve these goals is by adjusting interest rates. When prices are rising too quickly and inflation is above the Fed’s 2% target, it raises interest rates, increasing borrowing costs throughout the economy. This results in a stronger US Dollar (USD) as it makes the US a more attractive place for international investors to park their money. When inflation falls below 2% or the Unemployment Rate is too high, the Fed may lower interest rates to encourage borrowing, which weighs on the Greenback.

The Federal Reserve (Fed) holds eight policy meetings a year, where the Federal Open Market Committee (FOMC) assesses economic conditions and makes monetary policy decisions. The FOMC is attended by twelve Fed officials – the seven members of the Board of Governors, the president of the Federal Reserve Bank of New York, and four of the remaining eleven regional Reserve Bank presidents, who serve one-year terms on a rotating basis.

In extreme situations, the Federal Reserve may resort to a policy named Quantitative Easing (QE). QE is the process by which the Fed substantially increases the flow of credit in a stuck financial system. It is a non-standard policy measure used during crises or when inflation is extremely low. It was the Fed’s weapon of choice during the Great Financial Crisis in 2008. It involves the Fed printing more Dollars and using them to buy high grade bonds from financial institutions. QE usually weakens the US Dollar.

Quantitative tightening (QT) is the reverse process of QE, whereby the Federal Reserve stops buying bonds from financial institutions and does not reinvest the principal from the bonds it holds maturing, to purchase new bonds. It is usually positive for the value of the US Dollar.

Author

Christian Borjon Valencia

Markets analyst, news editor, and trading instructor with over 14 years of experience across FX, commodities, US equity indices, and global macro markets.

More from Christian Borjon Valencia
Share:

Editor's Picks

AUD/USD edges higher as hot CPI inflation and hawkish RBA lift rate hike bets

The AUD/USD pair gathers strength to near 0.7035 during the Asian trading hours on Friday. The Australian Dollar edges higher against the US Dollar as hotter Australian CPI inflation data has bolstered expectations of Reserve Bank of Australia rate hikes.

Japanese Yen stays resilient after BoJ maintains status quo

The Japanese Yen stays resilient against its major rivals on Friday, with USD/JPY trading in negative territory below 157.50. The Bank of Japan (BoJ) decided to leave monetary policy settings unchanged at the October meeting, as expected. In the post-meeting press conference, BoJ Governor Ueda reiterated that they will continue to raise the policy rate and adjust the degree of monetary easing in reponse to economic activity and prices.

Gold bears retain control below $4,000 as hawkish Fed bets back further losses

Gold extends its intraday breakdown momentum below the $4,000 psychological mark through the early European session on Friday, eyeing the monthly swing low amid hawkish US Federal Reserve expectations. US macro data on Thursday pointed to resilient economic growth and persistent price pressures, solidifying bets of an imminent Fed rate hike in December. This is seen as undermining the non-yielding bullion for the second straight day and backing the case for further depreciation.

The hawkish Fed can't lift the US Dollar anymore
About three more Federal Reserve hikes are already priced in, and the central banks behind the Euro, Pound, Yen and Loonie are raising rates or about to. That leaves the US Dollar Index with little to gain if the Fed keeps leaning toward higher rates.
Binance hack shakes crypto, but XRP pullback may not be so bearish
Crypto markets were hit by a big headline overnight. Binance confirmed a security incident in which a compromised engineer's laptop led to unauthorized withdrawals, with an estimated impact of around $6.3 billion. About $3 billion has been frozen so far, Binance says it will cover the losses, and withdrawals were paused while security checks are completed.
A hot US economy is supposed to sink Gold. It didn't. Here's why
Gold (XAU/USD) remains under pressure near $4,000, as stronger-than-expected United States (US) economic data reinforce expectations of another Federal Reserve (Fed) interest rate hike in December. Economic growth is accelerating, inflation remains elevated, and borrowing costs could rise further.