Gold (XAUUSD) retraced to $2,510 on Wednesday after reaching a new high of $2,531 the previous day. The pullback corresponds with a slight movement in the US Dollar (USD), which is negatively linked to Gold.
A changing perspective regarding the US economy’s forecast and fed rate decisions could trigger gold’s inverse relationship with the US Dollar. This perspective affects the future course of interest rates in the US, a crucial driver of the two assets.
Commodity analyst Giovanni Staunovo at UBS Global Wealth Management said the key drivers of recent gold gains have been the weaker U.S. dollar and expectations that the Federal Reserve will slash its lending rate next month.
Traders speculate there is a 30% chance that the Federal Reserve (Fed) will cut interest rates by 0.50% in September, while a regular 0.25 is currently fully priced. The likelihood of a massive rate cut remains very high, even though it is lower than the 50% chance last week.
The Gold 1-hour chart below shows the pullback in gold prices today.
Some analysts have criticised the degree to which the market is pricing in Fed rate cuts, saying they reflect a highly pessimistic outlook. Many market participants expect the US economy to have a hard landing, which is far from guaranteed. All eyes will be on Fed Chair Jerome Powell’s Friday speech in Jackson Hole, Wyoming.
This post was last modified on Aug 22, 2024, 16:37 BST 16:37