Gold is up nearly 0.6% today as investors anticipate a new round of monetary policy easing from the Fed and growing tensions in the Middle East. Media reported that Israel carried out a special military operation in southern Lebanon. However, the reaction of oil markets suggests that investors are still ignoring the possibility of a broader escalation in the region. Yesterday, Jerome Powell said the Federal Reserve could cut interest rates twice this year (by 25 basis points each time).
Furthermore, the Fed is adopting a particularly accommodative stance, with Raphael Bostic not ruling out a 50 basis point cut at the November meeting if the labor market weakens, and Austan Goolsbee clearly signaling that “there is will have many rate cuts.” Overall, easing policies on both sides of the Atlantic (US – Eurozone), interest rate cuts and stimulus programs in China, combined with geopolitical tensions and uncertainty surrounding outcomes easing cycles, stimulate demand for gold as a safe haven during recessions.
Main points from Jerome Powell’s press conference:
- The American economy is in good health; we plan to use our tools to keep it in this state. Policy will gradually move towards a more neutral position if the economy develops as expected.
- The job market remains strong, but it has definitely cooled. If the economy develops as expected, the Economic Forecast (SEP) shows two additional cuts of 25 basis points.
- The Fed is not rushing to cut rates quickly; my colleagues and I are increasingly confident that inflation is on a sustainable path towards 2%.
- There is no indication that a recession is more likely now; the labor market could give a better real-time picture of the state of the economy than GDP.
- Disinflation is widespread, with recent data showing further progress towards a sustainable return to 2%.
- Inflation in housing-related services will continue to fall as long as the rate of rent growth for new tenants remains low.
- A 50 basis point reduction reflects growing confidence that appropriate policy readjustment can maintain labor market strength while guiding inflation toward target.
Source: xStation5
U.S. Dollar Index (USDIDX) futures rebounded from 99.8 to near 100.8, but gold did not react to the move, continuing to advance, reaching $2,650 per hour. ounce, signaling positive near-term sentiment among investors.
Source: xStation5
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