Gold prices are holding steady near $2,515 in early Asian trading on Wednesday, buoyed by a softer US Dollar and rising expectations of an imminent interest rate cut by the Federal Reserve (Fed).
The yellow metal’s stability comes as market participants anticipate potential monetary policy easing by the Fed, particularly in the lead-up to the much-anticipated Jackson Hole symposium. This weaker dollar scenario typically makes gold more attractive to holders of other currencies, lending support to its price.
According to the CME FedWatch Tool, markets have currently priced in a 67.5% probability that the Fed will reduce interest rates by 25 basis points in September. This outlook is playing a significant role in sustaining gold’s current levels.
Aakash Doshi, head of commodities for North America at Citi Research, highlighted that the key drivers behind gold’s recent performance are increased financial investment demand, particularly through Exchange Traded Funds (ETFs), and a general improvement in market sentiment as the Fed’s easing cycle is expected to commence in September.
All eyes are now on Fed Chair Jerome Powell’s upcoming speech at the Jackson Hole symposium on Friday, which could provide further insights into the Fed’s rate plans. Dovish signals from Powell or other Fed officials could give gold prices an additional boost.
Adding to the potential upward pressure on gold is the ongoing geopolitical unrest in the Middle East, which traditionally strengthens demand for safe-haven assets like gold.
However, not all factors are bullish for gold. Weakening physical demand in China, the world’s largest gold producer and consumer, could limit price gains. Recent data indicates that China’s gold imports in July dropped by 24% to 44.6 tons, marking the lowest level in over two years. This decline reflects broader economic challenges in China, which could exert downward pressure on gold prices despite the supportive global factors.